Some high frequency indicators are pointing towards stabilisation in economic activity in India but the recovery is still not entrenched and will only be gradual, Reserve Bank of India Governor Shaktikanta Das said on Wednesday.The major economy hardest by the coronavirus pandemic, India has been forecast by most leading economists and banks to contract by around 10% in the fiscal year ending in March.

“High frequency indicators of agricultural activity, the purchasing managers index and certain private estimates on unemployment point to some stabilisation of economic activity in the second quarter of the current year,” Das told members of the Federation of Indian Chambers of Commerce & Industry’s national executive committee.

“The recovery is not yet fully entrenched,” he said.

“By all indications, the recovery is likely to be gradual as efforts towards re-opening of the economy are confronted with rising infections.”

Despite India seeing one of the strictest lockdowns in the world, the country has crossed 5 million COVID-19 infections, and has the world’s second highest number of cases.

Das also underlined the need to regulate non-bank finance companies (NBFCs) or shadow banks better, while highlighting the positive impact of the measures taken by the RBI to lowering borrowing costs for the government and corporates.

The RBI has all these years followed a light touch regulation policy with regards to NBFCs, Das said, adding that it has now taken measures to ensure no large entity failed as IL&FS did in 2019.

“The fragility, vulnerability of the NBFC sector is the main concern. They are still not at par with the banks in the matter of regulation and we don’t want a repeat of a crisis in another NBFC,” Das said.

He said the government, regulators and industry will need to work jointly for revival of the economy, adding that more focus would be needed on human capital, productivity growth, exports, tourism and food processing.

He said India’s participation in the global value chains (GVCs) has been lower than many emerging and developing countries and said domestic policies need to focus on the right mix of local and foreign content in exports while aiming to increase participation in the GVCs.

“It is also important to learn from global experience and nurture those trade agreements that go beyond traditional market access issues,” he added.