Highlights:
- RBI Governor says India’s GDP may contract by 9.5% in FY 21
- COVID-19 was a global pandemic and India is not the only country suffering
- India’s GDP growth rate may break out of contraction and turn positive in January- March quarter
The growth rate of India’s Gross Domestic Product or the GDP for the Fiscal Year 21 will contract by 9.5% due to the economic disruptions caused by the global COVID-19 pandemic which has hit the country’s economic activities, according to the statement by the governor of the Reserve Bank of India, Shaktikanta Das
However, the GDP growth rate “may break out of contraction and turn positive during January-March” due to the recovery seen across sectors, said Das.
The Monetary Policy Committee (MPC) of the RBI, which concluded its three-day meeting on Friday, maintained an accommodative stance to revive the growth of the country’s GDP on a durable basis and mitigate the impact of COVID-19 disruptions provided the inflation remains within the target of 4%, RBI governor Das said.
Das added, that the country’s “focus must shift from containment to revival,”.
Both global and domestic rating agencies also expect India’s GDP to contract this fiscal year owing to the pandemic-induced disruptions. According to the World Bank, India’s GDP growth is likely to contract 9.6% in FY21, a further contraction of 6.4% from its earlier forecast of 3.2%.
Even Fitch has forecasted that India’s GDP will contract 10.5% in the current Fiscal Year which is a further downward revision of 5.5% from 5% earlier.
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The repo rate has been kept unchanged by the RBI, said Das. Repo Rate is the key interest rate at which the apex bank lends money to the commercial banks.
This decision was in line with the estimates of many economists as inflation continues to stay well above the outer band of the central bank’s target of 6%.
The headline inflation of India based on Consumer Price Index (CPI) fell marginally to 6.69% in August this year from 6.73% in July, ruling out the possibility of a repo rate cut in the near term. The CPI inflation was at 3.28% in August 2019. The MPC aims to keep the retail inflation at 4% within a band of +/ – 2% in the medium-term through its policy rate changes.
The 6 member Monetary Policy Committee (MPC) of the Reserve Bank of India was unanimous in its decision to stand pat on the interest rates.
Three of the six members of the panel – Ashima Goyal, Jayanth R. Varma and Shashank Bhide – were appointed by the government earlier this week.
The RBI has postponed its three-day MPC meeting which was scheduled to start on the 29th of September to this week as the vacancies for three out of the 6 external members could not be filled after the tenure of Chetan Ghate, Pami Dua and Ravindra Dholakia ended in September.
The members of the MPC are not eligible for reappointment.
In the MPC, a key decision was also made on Funds Transfer as Governor Das said, “In December 2019, the RBI made available the National Electronic Funds Transfer (NEFT) system on a 24x7x365 basis and the system has been operating smoothly since then. In order to facilitate swift and seamless payments in real time for domestic businesses and institutions, it has been decided to make available the RTGS system round the clock on all days from December 2020,”.
