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Experts discuss how much dry powder is available for fiscal and monetary relief measures

Updated : April 27, 2020 08:52 PM IST

The COVID-19 crisis has hit the global economy and India is no exception. The economy has been virtually in a standstill since the nationwide lockdown was announced by the government more than a month back. At a meeting today with states, the Prime Minister Narendra Modi has hinted at more relaxations in green zones while keeping the COVID-19 hot spots off limits.

The Reserve Bank of India (RBI) governor Shaktikanta Das has said the government is working on an economic package to tackle the impact of the pandemic. The governor said the package would balance economic needs with a sustainable fiscal gap that is consistent with economic and financial stability. However, he added that any fiscal steps must be well targeted and must come with an exit strategy like sunset clauses built in.

While the central bank has not yet formed a view on monetising the fiscal deficit or the issue of COVID bonds, Das said all alternative options are being studied. But he reiterated that any option taken up will keep operational realities in sight, adhere to the RBI's main mandate of macroeconomic stability, and preserve the strength of central bank's balance sheet.

Last week's tepid response to the RBI's special repo operation to provide NBFCs and MFIs with liquidity has not gone unnoticed. The RBI has begun a review of the TLTRO 2.0, because the fact that only around 50 percent of the Rs 25,000 crore on offer saw takers and is a "telling message" that banks are not ready to take on risks beyond a point. But Das has assured the system that the central bank is in battle-ready mode to provide liquidity to the shadow-banking sector.

Interestingly, the governor did not commit to offering the 3-month moratorium offered on term loans and working capital loans to NBFCs. He went on to say that bank boards will be the final deciding authority on how and to whom the moratorium is offered, and the banking regulator will not interfere in this process.

Separately, the RBI has thrown mutual funds Rs 50,000 crore lifeline in the form of a special liquidity window. Banks can raise money from this window exclusively to either lend to mutual funds against corporate bonds in their portfolios, or buy these securities outright.

D Subbarao, former governor of RBI; Prachi Mishra, managing director and chief India economist at Goldman Sachs; Rathin Roy, director of NIPFP; Sunil Kant Munjal, chairman at Hero Enterprise are in conversation with CNBC-TV18 to discuss how much gunpowder is available for fiscal and monetary response.
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