'Covid-19 hangs over future like spectre': RBI in Monetary Policy Report

The macroeconomic risks held forth by the Covid-19 outbreak would be severe for India, the Reserve Bank of India (RBI) said in its monetary policy report, released on Thursday morning.

The impact of the pandemic came at a time when the economy was just at the turn of a recovery, “but Covid-19 now “hangs over the future, like a spectre,” it said. “While efforts are being mounted on a war footing to arrest its spread, Covid-19 would impact economic activity in India directly through domestic lockdown.”

The second-round effects would operate through a severe slowdown in global trade and growth. “More immediately, spillovers are being transmitted through finance and confidence channels to domestic financial markets.”

These would inevitably accentuate the growth slowdown, which started in the first quarter of the 2018-19 financial year and continued through the second half of 2019-20.

The outlook for 2020-21 growth was looking up before the Covid-19 scare. There was a bumper rabi harvest, and higher food prices during 2019-20 provided conducive conditions for the strengthening of rural demand. The transmission of policy rate cuts was also improving, with favourable implications for both consumption and investment demand. Reductions in the goods and services tax (GST) rates, corporation tax rate cuts in September 2019, and measures to boost rural and infrastructure spending were to have a positive impact at boosting domestic demand. But “the Covid-19 pandemic has drastically altered this outlook”, the monetary policy report said.

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