The Indian economy’s medium-term outlook remains uncertain even though the country has started re-opening after over two months of a nationwide lockdown, as demand and supply shocks due to the coronavirus still loom large, the central bank governor said on Saturday.
Policy responses by the central bank appear to have worked so far, but going forward the situation would need even more careful assessment, said Reserve Bank of India Governor Shaktikanta Das.Reserve Bank of India (RBI) Governor Shaktikanta Das said on Saturday describing the COVID-19 outbreak has "unambiguously the worst health and economic crisis in the last 100 years during peacetime".
The RBI's policy responses with a multi-pronged approach appear to have worked so far, but the situation would need even more careful assessment going forward, said the RBI Governor, in his keynote address at the seventh SBI Banking and Economics Conclave
The country's economy has started showing signs of normalcy with easing of more than two months of COVID-19-related lockdown restrictions, however "a very careful trajectory" has to be followed after the containment of the pandemic. The economy's medium-term outlook remains uncertain even though the country has started re-opening after over two months of a nationwide lockdown, as demand and supply shocks due to the coronavirus still loom large, Shaktikanta Das said,
The COVID-19 outbreak has "dented the existing world order, global value chains, labour and capital movements across the globe, and, needless to say, the socioeconomic conditions of large sections of the world population".
The COVID-19 pandemic, perhaps, represents so-far the biggest test of the robustness and resilience of our economic and financial system," Das added.
he country's banking and financial system is capable of rising to the occasion in meeting the challenge imposed by the COVID-19 outbreak,Das said.
However, Mr Das warned that the damage caused by the COVID-19-triggered lockdown and anticipated post-lockdown stress on the economy may lead to higher non-performing assets and capital erosion in banks. Banks will have to raise capital in an anticipatory basis, which makes a recapitalisation plan for public and private sector lenders absolutely necessary, the RBI chief said. Banks also have to improve governance and sharpen their risk management, he said.
"Banks and other financial entities are today at the forefront of the country's counter-measures against the economic impact of COVID-19. They are the transmission channels for the RBI's monetary, regulatory and other policy measures… and also the implementation vehicles for the financial backstop measures announced by the government," the RBI Governor said.
The Governor reiterated that the RBI has taken a number of important measures, conventional and unconventional, to boost the financial system and support the economy against the crisis. The RBI has announced liquidity measures worth Rs 9.57 lakh crore since February this year, equivalent to 4.7 per cent of the country's nominal GDP in 2019-20, he pointed out.