Despite the fresh threat from rising COVID-19 cases, the Reserve Bank of India (RBI) chief maintained the central bank’s forecast for GDP growth in FY22 at 10.5%.
RBI Governor Shaktikanta Das on Thursday said though the renewed surge in COVID-19 cases in many parts of India was a concern, this time around growth would continue ‘unabated’.
He said the Reserve Bank remained ‘fully committed’ to use all policy tools to secure a robust recovery of the economy from the debilitating effects of the pandemic.
“We have to keep in mind that this time around, compared to where we were last year, let us say in March or April, we have some additional insurance against the impact of the COVID-19 pandemic,” he said in his inaugural virtual address at ‘The Times Network India Economic Conclave 2021’.
“The first is that the two vaccines which are being rolled out,” he said, adding that the speed of the roll-out had been ‘very fast’ and about 5 crore people had already been vaccinated.
“The second aspect is that overall, by and large people are now used to the COVID-19 protocols. So one would expect that people who have lowered their guard would step up their guard against the spread of COVID-19 [virus],” he said.
“And third, at this point... one does not foresee a kind of lockdown that we had experienced last year. Because last year, it came as a huge shock. This time we all know what the pandemic is all about, notwithstanding some new strains which have developed,” he added.
‘Preliminary analysis’
Mr. Das asserted, “revival of economic activity which has happened should continue unabated going forward and I don’t foresee [a downward revision], although I should not be saying this before the details are presented by our research teams. But my understanding and our preliminary analysis show that the growth rate of 10.5% for next year, which we had given, would not require a downward revision.”
To a question on keeping rising bond yields in check, Mr. Das said, “The relationship between the central bank and bond markets need not be combative, it has to be cooperative. We have been emphasising time and again that there should be an orderly evolution of the yield curve and not sudden spikes or any knee-jerk reaction to certain incoming numbers.”
Stating that the government’s borrowings for the next year would remain in the same range as it had been this year, Mr. Das said that the RBI would manage the borrowings and that there should not be any ‘disorder in the yield curve’.
“A disorderly or disorganised yield curve evolution will act as an impediment for growth. It will undermine the process of economic recovery not just in India but in all other countries. So, that is why all central banks are concerned.” Mr. Das said.
He said bonds yields are important because they are the benchmark for cost of money for the private sector. “So we are emphasising on the orderly evolution of the yield curve,” he said.
Speaking about the financial sector in the new decade, the theme of conclave, Mr. Das said in the dynamic world of financial services, and more so after the pandemic, financial technologies (FinTech) would challenge the financial sector with innovations.
“Harnessing FinTech for customer services will effectively control costs and expand banking and non-banking businesses. The increased use of digital payments brought about by COVID-19 could fuel a rise in digital lending in the current decade as companies accumulate consumer data and enhance credit analytics,” he said.
“This, in turn, presents new and complex trade-offs [among] financial stability, competition and data protection; thereby warranting new regulatory frameworks and novel ways of monitoring. It is imperative for financial sector regulators to monitor global developments and formulate policy responses to the risks and the opportunities,” he added.
