There is plenty of money to go around for supporting the economic recovery underway in the country and RBI governor Shaktikanta Das and team are in no mood to even suggest something like a “tapering” for the strong liquidity injection that they have given to the system.
About Rs 9.5 lakh crore was the surplus liquidity in the Indian banking system in October first week and in the latest bi-monthly Monetary Policy Statement on October 8 the RBI said the “accommodative” stance will continue.
As the RBI itself said “at the current juncture, central banks across the world find themselves at crossroads. Diverging monetary policy stances are not being dictated by country groupings but by country circumstances. Among EMEs, some are tightening monetary policy, others are undertaking further monetary stimulus, while a few are on a resolute pause”.
But India’s policy will continue to ensure that there is enough systemic liquidity “oriented to our domestic circumstances and our assessment”.
What is more, inflation is seemingly less of a worry, according to RBI and it is committed to bringing it within the targeted 4 per cent in a “non-disruptive” manner. For this financial year, the CPI inflation will however be above 5 per cent but that has more to do with supply side factors, higher edible oil costs and the rise in the retail prices of pulses.
The vaccination drive has gained good momentum and states across the country are getting back to normal life fast — in fact, faster than anyone thought.
Take for instance air travel. Passenger planes are flying almost to full capacity of late and on October 8 in Guwahati and Mumbai, which this writer transited, the queues were so long and the surging crowds made the airport look like a bus-stand, back again. (The RBI data, as per October 8's statement, still shows a lag in the number of passengers)
In the summary, the RBI pointed to the following high-frequency indicators to state why it believes growth is back on track.
The GST collections in August and September have been near-about Rs 1.15 lakh crore each.
Core industries consisting of 8 sectors like cement, electricity and fertilisers recorded an increase in output this August even compared to the pre-COVID levels of August, 2019.
Railway freight movement has increased recently. E-way bill generation for goods transportation under the Goods and Services Tax (GST) system came in at 6.79 crore September, the highest this year.
Record output of 150 million tonnes of Kharif foodgrains augurs well for the rural sector. Rabi sowing has been buoyed by the higher MSP announced for wheat and a few other commodities.
From a regulatory perspective, the RBI also announced these measures to support the growth recovery.
The facility of bank loans to Non-Banking Finance Companies (NBFCs) being allowed to be classified under Priority Sector if the ultimate beneficiary of the NBFC is engaged in Agriculture or MSME, subject to certain limits is now continued up to March 31, 2022.
The “ways and means” advances limit for state governments which was hiked to Rs 51,560 crores following the pandemic has now been allowed to be continued up to March 31,2022.
The interest rate for this facility is only 4 per cent. (Kerala has a limit of about Rs 2000 crores under this facility).
As in the past, the RBI governor harped on the overarching theme of growth this time too. “According to the release of National Statistical Office on August 31, real GDP growth for Q1:2021-22 at 20.1 per cent exhibited resilience of the economy in the face of the destructive second wave of COVID-19. Almost all components of GDP registered y-o-y growth, despite a sharp loss of momentum due to the second wave,” he said.
According to him, the pent-up demand and the festival season should give further fillip to urban demand in the second half of the financial year. Rural demand is expected to get impetus from the continued resilience of the agricultural sector. The support to aggregate demand from government consumption is also gathering pace. Improvement in government capex, together with congenial financial conditions, could bring about an upturn in the much-awaited virtuous investment cycle.
When the RBI governor concluded his statement with an inevitable quote from Mahatma Gandhi, he resonated a tone of optimism and hope, so badly needed in these troubled times.
(The author is Chief General Manager of SBI. Views are personal)