Money & Banking

Macroeconomic risks likely to be severe, warns RBI chief

Our Bureau Mumbai | Updated on March 27, 2020

Shaktikanta Das, RBI Governor   -  BusinessLine

Apart from the continuing resilience of agriculture and allied activities, most of the sectors will be adversely impacted by the Covid-19 pandemic in FY21, cautioned Reserve Bank of India (RBI) Governor Shaktikanta Das.

The impact will depend on the pandemic’s intensity, spread and duration. The monetary policy committee (MPC) is of the view that macroeconomic risks, both on the demand and supply side, brought on by the pandemic could be severe. The need of the hour is to do whatever is necessary to shield the domestic economy from the pandemic.

If Covid-19 is prolonged and supply chain disruptions get accentuated, the global slowdown could deepen, with adverse implications for India, said the Governor. The slump in international crude prices could, however, provide some relief in the form of terms of trade gains.

“Downside risks to growth arise from the spread of Covid-19 and prolonged lockdown. Upside growth impulses are expected to emanate from monetary, fiscal and other policy measures and the early containment of Covid-19,” said Das.

The Governor observed that the implied real GDP growth of 4.7 per cent for Q4 (January to March) 2019-20 in the second advance estimates of the National Statistics Office, released in February 2020, within the annual estimate of 5 per cent for the year as a whole, is now at risk from the pandemic’s impact on the economy.

The six-member rate-setting monetary policy committee (MPC) noted that global economic activity has come to a near standstill as Covid-19-related lockdown and social distancing are imposed across a widening swathe of affected countries.


“Expectations of a shallow recovery in 2020 from 2019’s decade low in global growth have been dashed. The outlook is now heavily contingent upon the intensity, spread and duration of the pandemic. There is a rising probability that large parts of the global economy will slip into recession,” warned Das.

The MPC emphasised that the priority is to undertake strong and purposeful action to minimise the adverse macroeconomic impact of the pandemic.

“It also underscored the need for all stakeholders to fight against the pandemic…. Strong fiscal measures are, of course, critical to deal with the situation. Covid-19 stalks the global economy, and the outlook is highly uncertain and negative.

“Several nations are battling its exponential contagion; countries are shutting down to prevent being sucked into that black hole. Authorities all over the world are mobilising on a massive scale to fight an invisible assassin. India has locked down. Economic activity and financial markets are under severe stress,” said Das.

As regards inflation, the Governor noted that the prints for January and February 2020 indicate that the actual outcome for the quarter are running 30 basis points above projections, reflecting the onion price shock.

“Looking ahead, food prices may soften even further under the beneficial effects of the record foodgrains and horticulture production, at least till the onset of the usual summer uptick.

“Furthermore, the collapse in crude prices should work towards easing both fuel and core inflation pressures, depending on the level of the pass-through to retail prices. As a consequence of Covid-19, aggregate demand may weaken and ease core inflation further,” said Das.

The Governor underscored that heightened volatility in financial markets could also have a bearing on inflation. He said, “Given this heightened volatility, unprecedented uncertainty and extremely fluid state of affairs, projections of growth, and inflation would be heavily contingent on the intensity, spread and duration of Covid-19 . Precisely for these reasons, the MPC refrained from giving out specific growth and inflation numbers.”

Published on March 27, 2020

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