India’s Gross Domestic Product (GDP) contracting by 23.9 percent in the first quarter of the year was a telling reflection of the ravages of COVID19, Reserve Bank Governor Shaktikanta Das today said. While agricultural activity, private estimates for employment and the manufacturing Purchasing Managers’ Index (PMI) point to some stabilisation in the second quarter, Das said that recovery is not yet fully entrenched.
“In some sectors, upticks in June and July appear to be levelling off. By all indications, the recovery is likely to be gradual as efforts towards reopening of the economy are confronted with rising infections,” the governor noted in his remarks at the FICCI National Executive Committee Meeting on Wednesday morning.
Thanks to RBI front loading rate cuts, Shaktikanta Das said financial market conditions in India have eased significantly, and across segments. “Despite a substantial increase in the borrowing programme of the Government, persistently large surplus liquidity conditions have ensured non-disruptive mobilisation of resources at the lowest borrowing costs in a decade,” Das said.
The yield on 1-year G-Sec benchmark surged by 35 basis points in August 2020 on the back of inflation concerns and a further increase in supply of government papers. The Governor said that with RBI’s announcement of special open market operations (OMOs) and other measures to restore orderly functioning of the G-sec market, bond yields softened and traded in a narrow range in September.
Banks’ investments in commercial paper, bonds, debentures and shares of corporate bodies in this year so far has increased by Rs 5,615 crore as against a decline of Rs 32,245 crore during the same period of last year, the Governor highlighted. Das said the substantial narrowing of spreads or cost reduction has spurred a record issuance of corporate bonds of close to Rs 3.2 lakh crore during 2020-21 up to August.
The governor also laid down five focus areas that will ensure India gets back to the growth trajectory, in addition to five other areas he had highlighted in his address to CII in July.
These five areas which, said Das, would determine the country’s ability to step up and sustain growth in the medium-run. They include human capital, in particular education and health, productivity, exports, which is linked to raising India’s role in the global value chain, tourism, and food processing and associated productivity gains.
Das had previously highlighted five other areas, including fortunes shifting in favour of the farm sector, changing energy mix in favour of renewables, leveraging information and communication technology (ICT) and start-ups to power growth, shifts in supply/value chains, both domestic and global, and infrastructure as the force multiplier of growth.