By Iqbal Abhimanyu
New Delhi, Apr 17 (efe-epa).- The governor of the Reserve Bank of India on Friday admitted that the economic condition in the country had deteriorated during a strict nationwide lockdown, set to last at least until May 3, and announced measures to boost the economy, such as reducing the interest rate on the reverse repo – repurchase of loans – by 0.25 percent
Shaktikanta Das held a press briefing to assess the current economic situation, three days after Prime Minister Narendra Modi announced a 19-day extension of the nationwide lockdown to prevent the spread of the new coronavirus, which was initially set to last for a three-week period ending Apr. 15.
Das announced that the RBI was cutting down the reverse repo rate, the interest rate at which the central bank borrows money from commercial banks, from 4 percent to 3.75 percent, and was set to offer fresh liquidity worth 500 billion rupees ($6.55 billion) to financial institutions through the Targeted Long Term Repo Operations scheme.
At least 50 percent of these loans would be assigned specifically to small and medium sized non-bank financial companies, including micro-finance firms, which play a crucial role in India’s important rural economy and the unorganized sector.
The central bank also announced a refinancing facility worth 500 billion rupees to state-owned banks that extend credit to the housing, agriculture, rural development and small-scale industries.
“Economic activity has come to a standstill during the period of the lockdown, with consequential lingering effects which have unambiguously affected the cash flows of households and businesses,” Das said, although emphasizing that India was one of the few countries projected to sustain a positive GDP growth, of 1.9 percent, this year.
The governor said that exports had fallen by as much as 34.6 percent during March, performing worse than during the global financial crisis of 2008, while merchandise imports also fell by 28.7 percent during the period.
However he also highlighted a “few slivers of brightness amidst the encircling gloom” in the economy, such as resilience in agricultural production and activity and “robust” foreign exchange reserves, which stood at $ 476.5 billion on Apr. 10, equivalent to 11.8 months of imports.
The RBI had announced the first set of measures protect the economy on Mar. 27, slashing the repo rate – the interest at which it lends money to commercial banks – by 0.75 percent to 4.4 percent and taking steps to provide a 3.74 trillion rupee liquidity injection for the economy, including a first set of TLTRO loans for banks worth over 1 trillion rupees.
On Friday, Das said that it was important for banks to conserve capital in order to absorb losses, and ordered them to stop making dividend payouts to clients from profits in financial year ending Mar. 31, until further instructions.
The measures come amid reports of widespread economic distress among the country’s poor and migrant populations as all businesses except essential services have been shut down since Mar. 25.
Experts have warned that a prolonged shutdown could trigger recession in India’s $2.9 trillion-economy, which was already in crisis before the lockdown, with the highest unemployment rate in decades.
However, Das cited the International Monetary Fund’s projections for sharp recoveries after the COVID-19 crisis to predict that India’s GDP could rebound to a 7.4 percent growth in the financial year 2021-22. EFE-EPA