Reserve Bank of India (RBI) Governor Shaktikanta Das highlighted the need to put in place all efforts to ease financing conditions for reviving consumption after the coronavirus lockdown is lifted, according to the minutes of the monetary policy meeting released by the central bank on Friday. Das also said that the risks to growth have increased further than estimated earlier in March 2020.
"The key challenge for monetary policy at this stage is to resuscitate domestic demand to avoid any harmful effect on income and employment in the short run and potential growth over the medium term. For strengthening domestic demand, it is important to revive consumer and business confidence," said Das, as per the minutes.
The RBI has also been easing monetary policy to reduce the cost of capital to revive domestic demand. "While all these measures should help support demand as and when the nationwide lockdown is lifted, given the enormity of a collapse in demand, the need is to move ahead full throttle to ease financing conditions further so as to revive consumption and revitalize investment," Das said.
In the meeting, RBI Deputy Governor Michael Debabrata Patra said the damage is "so deep and extensive" that India''s potential output has been pushed down, and it will take years to repair.
During the MPC deliberations, Ravindra H Dholakia said once the situation returns to normal and the fiscal and monetary boost measures start generating impacts, the recovering economy may require some further boost. "Continuing lockdown in the geographical areas that contribute a major share in the Indian economy and worsening global economic situation due to COVID-19 has now created a distinct possibility of the real GDP growth in India during 2020-21 to be in the negative zone for the first time in the last 40 years," MPC member Dholakia was quoted as saying in the MPC minutes.
MPC member Pami Dua said that GDP growth in FY 2020-21 is expected to remain in negative territory, with some respite in the second half of the fiscal year.
The Monetary Policy Committee (MPC) meeting was originally scheduled from June 3 to 5 but was advanced to May 20 to 22 owing to coronavirus crisis. The central bank reduced the repo rate by 40 basis points, lowering it to 4 per cent. Chetan Ghate, the only member who voted for 25 bps cut in the key policy rate, said the strongest argument for a big rate cut would, therefore, be the dire growth outcomes due to coronavirus. The other five members of the MPC had voted for a 40 basis points rate cut.