Reserve Bank of India (RBI) Governor Shaktikanta Das said Central Bank Digital Currency (CBDC) is going to be a major transformation in the way business is done — the way transactions are conducted and highlighted that RBI is among the very few central banks in the world which have taken this initiative.
FIBAC is an annual banking conference, organised by the Federation of Indian Chambers of Commerce and Industry [FICCI] and Indian Banks’ Association [IBA].
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While addressing FIBAC on November 2, Governor Shaktikanta Das said, “Yesterday, we launched the trial of our digital currency, Central Bank Digital Currency [CBDC] project. It was indeed a landmark moment in the history of currency in our country. Going forward, it will be a landmark moment. It will be a landmark achievement so far as the functioning of the entire economy is concerned.”
“Will to try and launch the CBDC in a full-fledged manner in the near future,” he said. CBDC is a digital form of currency notes issued by a central bank. Mr. Das announced that the retail part of the CBDC trial will be launched later this month and added, “We will announce the date separately, but I don’t want to give a target date by which time the CBDCs will be launched in our full-scale manner, because this is something where we have to proceed very carefully. This is the first time the world is doing it. We don’t want to be in a great hurry, we want to learn from the experience.”
Mr. Das also announced that end-to-end digitisation of Kisan Credit Card (KCC) loans will be launched on a nationwide basis during the calender year 2023. “Based on the learnings and experience of the pilot project of end-to-end digitisation of KCC loans, our endeavour would be to launch it in a full-scale manner if everything goes alright, not only for the farmers’ loans, but also for the SME loans. We hope to launch it on a nationwide basis during the calender year 2023,” he said.
RBI started the pilot project of end-to-end digitisation of Kisan Credit Card (KCC) loans in September 2022 in selected districts of Madhya Pradesh and Tamil Nadu with Union Bank of India and Federal Bank, respectively, as partner banks and with active cooperation of the respective State Governments.
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“This pilot project on digitalisation of KCC lending is expected to play a pivotal role in facilitating credit flow to the unserved and underserved rural population by making the credit process faster and more efficient. When fully implemented, this has the potential to transform the rural credit delivery system of the country,” the Governor added.
‘RBI avoided premature tightening to prevent complete downward turn’
Amid flak faced by the RBI for missing inflation target, Governor Shaktikanta Das defended its policies saying the economy would have taken a “complete downward turn” if it had started to tighten rates earlier.
Mr. Das said the Indian economy is being looked at as a story of resilience and optimism by the world and the inflation is now expected to moderate.
Acknowledging that the central bank has missed its primary target as inflation has consistently overshot, Mr. Das said there is a need for appreciating the counterfactual aspect as well, and think about the impact of premature tightening which would have hurt recovery.
“It [tightening earlier] would have been very costly for the economy. It would have been very costly for the citizens of this country. We would have paid a high cost,” he said.
“We prevented a complete downward turn of our economy,” Mr. Das said, adding that RBI did not want to upset the recovery process and was guiding the economy towards a safe landing.
During the pandemic, the RBI utilised flexibility in the monetary policy framework to tolerate a slightly higher inflation which was within the target range of 2-6%, to ensure that overall economy remained resilient and financial stability was maintained, Mr. Das said.
He said the economy bounced back in FY22 and FY23 after contracting in the pandemic-affected FY21, and is also expected to sustain in FY24.
High inflation
It can be noted that some critics have questioned the delay in rate tightening, which began in May this year with an off-cycle meeting of the rate-setting panel, saying the RBI should have acted earlier in the face of high inflation.
Seeking to address the critique of the RBI being behind the curve, Mr. Das said the debate on this topic is over and presented a chronology to illustrate how the Russian invasion of Ukraine which led to commodity price spike and impact on financial markets said all estimates were wrong.
Till the war started, the RBI was expecting headline inflation to come at 4.3% while the analysts were forecasting it to be above 5%, but the war that started on February 24, led to all estimates going wrong.
He said the RBI’s rate setting panel will be meeting on November 3 to discuss and formulate a response to the government for a failure to meet the inflation target. Its reply will focus on the reasons that led to inflation staying above 6% for nine consecutive months, when it sees coming back into the 2-6% band and the measures that will be taken, Mr. Das said.
Amid criticism for its decision not to make the communication public, Mr. Das said there is no law which gives him the privilege, luxury and authority to go public with the letter and asserted that keeping it private does not compromise transparency in any way.
‘India’s recovery broad based’
On the growth front, he said India’s recovery has been more broad based, courtesy timely and targeted fiscal, monetary and regulatory policies.
A study of 70 high frequency indicators by the RBI is pointing towards a healthy private consumption, especially in the urban areas, Mr. Das said, pointing to the purchases that happened during the recently concluded festivities.
Contact intensive services have continued to make a smart rebound, Mr. Das said, adding that retail sales of white goods and fast moving consumer goods have also improved.
The external demand was classified as a “weak spot” by the RBI Governor because of the overall headwinds faced in major markets.
In remarks that come hours ahead of the U.S. Fed’s decision on rates, Mr. Das said the American central bank cannot keep tightening endlessly and added that once the hikes stop, capital flows will resume to countries like India.
He asked people not to look at currency depreciation from an emotional perspective, asserting that there has been an orderly depreciation of the domestic currency.
