Economy

Economy not ready yet for RBI to drain out liquidity: FM

Our Bureau New Delhi | Updated on August 13, 2021

Sitharaman assures States/UTs on timely payment of the GST compensation

The economy has not yet bounced back to levels where the Reserve Bank of India (RBI) can start draining out the liquidity, Finance MInister Nirmala Sitharaman has said. The effects of the Covid pandemic’s two waves are still being felt, she said.

“I am glad that the RBI understands that quicker retrieval of the liquidity from the economy may not do the necessary things to win,” Sitharaman said on Thursday, addressing the annual meeting of the Confederation of Indian Industries. Last fiscal, as part of the Atmanirbhar Bharat scheme, the RBI provided liquidity support of over ₹8- lakh crore.

“They have not given any indication about wanting to suck out the liquidity that is available there,” the Minister said.

Working in tandem

Highlighting the relationship between the Government and the RBI, she said both are working as partners to address the issue of the economy. “Even during the pandemic, if the RBI and its monetary policy have been keeping the momentum in the right direction, the fiscal side has been taken care of by the Ministry of Finance,” she said.

North Block and the Mint Street will continue to work in tandem for betterment of the economy.

GST loopholes plugged

The Minister said the GST compensation will be paid on time to all the States and Union Territories (UT). She said that “We are able to plug a lot of loopholes and that is one of the reasons for the revenue... and revenue buoyancy has today come to a level where we are sure that this year GST compensation to all the States will be paid in time so that they have money in their hands to undertake all the development activities they need to,” she said.

During the current fiscal, the total compensation requirement is expected to be ₹2.69-lakh crore. It is estimated that ₹1.11-lakh crore will be collected through cess on luxury, demerit and sin goods, which will be given to the States to compensate them for the shortfall in revenue arising out of GST implementation.

For the remaining ₹1.58- lakh crore, the GST Council has approved back-to-back loan facility, out of which ₹75,000 crore has already been released while the remaining is to be released in instalments during the second half.

The government has already clarified that bimonthly payment from the cess collection will continue on schedule. Now, the hope is that with GST collections improving, the requirement for compensation will taper.

Growth vs inflation

About the debate on growth versus inflation, Sitharaman said that growth will have its priority. It will be given its importance and pushed. “I am not looking at growth versus inflation. We shall attend to inflation, keep it contained, take necessary steps, but never forget that growth is what is going to make the difference to the economy’s revival and growth is eventually going to remove poverty and bring certain level playing filed for all the citizens,” she added.

Continuous FDI flow

Observing that some high frequency indicators are pointing towards economic revival after the unlock measures announced by many States with a decline in Covid-19 cases, she said foreign direct investment (FDI) has been flowing into India non-stop despite the pandemic because there was confidence about the macroeconomic fundamentals.

“As a result, we probably were in the third or the fourth place in 2020, in getting FDI. And even this year, in the first five months, we have had about 37 per cent more FDI coming into this country compared to the last year itself,” she said.

Published on August 12, 2021

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