RBI: India must be competitive and not combative
First Published Dec 4, 2020, 12:38 PM IST
Reserve Bank of India Governor Shaktikanta Das today said that the recovery in India's economy has been stronger than expected. He, however, while cautioning that the recent surge in COVID-19 infections has the potential to reverse the gains made. Here are 15 takeaways from his macroeconomic outlook
* Real GDP growth for 2021 is projected at -7.5%
* Data that have become available for Q3:2020-21 confirm that the economy is recuperating faster than anticipated and more sectors are joining the multi-speed upturn.
* The manufacturing and services purchasing managers’ index (PMI) at 56.3 and 53.7 respectively in November 2020 remain in expansion zone. High frequency indicators of services showed stability and increase in the number of upticks.
* The recovery in rural demand is expected to strengthen further, while urban demand is gaining momentum as unlocking spurs activity and employment, especially for labour displaced by COVID-19. These positive impulses are, however, clouded by a possible rise in infections in some parts of the country, prompting some local containment measures.
* CPI inflation rose sharply to 7.3 per cent in September and further to 7.6 per cent in October 2020, with some evidence that price pressures are spreading. The outlook for inflation has turned adverse relative to expectations in the last two months. CPI inflation is projected at 6.8 per cent for Q3:2020-21, 5.8 per cent for Q4:2020-21; and 5.2 to 4.6 per cent in H1:2021-22, with risks broadly balanced.
* Corporate results for Q2:2020-21 indicate that demand conditions are recovering and profit margins are rising on the back of cost saving on expenses and debt servicing capacity has gone up. Business assessment of manufacturing firms has entered the expansion zone in Q3:2020-21 after remaining in contraction in the last two quarters.
* RBI to issue Digital Payment Security Controls directions for the regulated entities. These directions will contain requirements for robust governance, implementation and monitoring of certain minimum standards on common security controls for channels like internet and mobile banking, card payments, etc.
* RTGS system will soon be made 24x7. With this enablement, it is proposed to reduce settlement and default risk in the system by facilitating settlement of AePS, IMPS, NETC, NFS, RuPay, UPI transactions on all days of the week. This will make the payments ecosystem more efficient
* In order to expand the adoption of digital payments in a safe and secure manner, it is proposed to enhance, at the discretion of the user, the limits for contactless card
transactions and e-mandates for recurring transactions through cards (and UPI) from Rs 2,000 to Rs 5,000 from January 1, 2021.
* Prospects of political stability and expectations of fiscal stimulus have churned up risk appetite, causing investors to exit the safe-haven of US treasuries and search for returns. As a consequence, surges of capital flows have flooded into India.
* The government borrowings programme -- both Centre and the states – has progressed smoothly so far in the year and I would like to reiterate what I said in October - the importance of cooperative solutions for orderly market movements. We need to be competitive and not combative
* Inflation is likely to remain elevated, with some relief in the winter months from prices of perishables and bumper kharif arrivals. This constrains monetary policy at the current juncture from using the space available to act in support of growth.
* The signs of recovery are far from being broad-based and are dependent on sustained policy support. A small window is available for proactive supply management strategies to break the inflation spiral being fuelled by supply chain disruptions, excessive margins and indirect taxes. Further efforts are necessary to mitigate supply-side driven inflation pressures. It was hence decided to maintain the status quo in policy rates.
* It was necessary to maintain status quo on the policy rate and continue with the accommodative stance as long as necessary -- at least during the current financial year and into the next financial year -- to revive growth on a durable basis and mitigate the impact of COVID-19 on the economy, while ensuing that inflation remains within the target going forward. Marginal Standing Facility and Bank Rate remain unchanged at 4.25%. Reverse Repo Rate too remains unchanged at 3.35%
* Commercial and co-operative banks will retain profits earned & will not give out dividends for FY21
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