“Consumer confidence is reviving, and business expectations of manufacturing, services and infrastructure remain upbeat. The movement of goods and people and domestic trading activity is growing at a robust pace. Electricity and energy demand reflect a broader normalisation of economic activity than in December, even as fears of second wave abate,” said Das.
He said the Union Budget 2021-22 has provided a strong impetus for revival of sectors such as health and well-being, infrastructure, innovation and research, among others. This will have a cascading multiplier effect going forward, particularly in improving the investment climate and reinvigorating domestic demand, income and employment.
“The investment-oriented stimulus under AatmaNirbhar 2.0 and 3.0 (given during the peak of the pandemic) has started working its way through and is improving the spending momentum along with the quality of public investment. Both will facilitate regaining India’s growth potential over the medium term. The projected increase in capital expenditure augurs well for capacity creation and crowding in private investment, thereby improving the prospects for growth and building credibility around the quality of expenditure,” said Das.
Budget Gives Impetus To Revive Several Sectors, Says Guv
Bankers saw the CRR restoration as a sign that the RBI was seeing the recovery as durable and part of the return to normalcy. In its policy statement the central bank forecast growth of 10.5% for FY22, marginally lower than the government’s 11% expectation, but a sharp bounce back from the 7.7% contraction in FY21.
Inflation was forecast to be in 5-5.2% range during the first half of the next fiscal year and 5.2% in the fourth quarter, well within the 6% tolerance level “The need of the hour is to continue to support growth, assuage the impact of Covid-19 and return the economy to a higher growth trajectory,” said Das announcing the MPC decision.
The governor said higher fresh arrivals and active supply side interventions contributed to softening of vegetable prices. “It is expected that vegetable prices will remain soft in the near term, while pressures may continue to persist in certain key food items. The outlook for core inflation is influenced by the escalation in cost-push pressures seen in recent months,” said Das
“Petroleum product prices have reached historic highs as international crude prices surged in recent months and the high indirect taxes remain, both in the Centre and states. These, along with the sharp increase in industrial raw material prices have resulted in a broad-based increase in prices of services and manufacturing products in recent months. Going forward, concerted policy action by both Centre and States, is critical to ensure that the ongoing cost build-up does not escalate further,” the governor said, highlighting the risks to the inflation situation.
Das also announced refinance through long-term repos to banks that lend to NBFCs and exemption from cash reserve requirements for deposits used to fund small businesses up to Rs 25 lakh.
Pointing out that RBI has managed the government’s borrowing programme, raising funds at the lowest rates in 15 years in the midst of the pandemic, Das said that it will do the same in FY22. “We are confident that going forward, in 2021-22 also, we will be able to implement the government borrowing programme in the most non-disruptive manner. Let there not be any doubt about this,” he said.
While there were some concerns about the CRR restoration draining liquidity, deputy governor Michael Patra assured that the CRR, which was a temporary measure, would be replaced with more durable liquidity infusing measures that are market-friendly. He added that allowing banks to keep bonds in a held to maturity portfolio would give them more headroom to invest.
“Every normalisation you have to cross the river by feeling the pebbles. We will calibrate it according to how the market responds, how market sentiments pan out. It will not be a programmed and a ‘cold turkey’ method,” said Patra. Besides the monetary measures, the governor also announced a relaxation in the deadline for complying with new capital norms.