India’s post-COVID-19 economic recovery among world’s best: RBI Governor

Kochi: Reserve Bank of India (RBI) Governor Shaktikanta Das has said that India's economic recovery from the Covid-19-induced crisis has been one of the best in the world. He said that the story of the Indian economy stands out amid a global slowdown triggered by the pandemic and escalated by geopolitical tensions and extreme climate events.

He cited the GDP figures and projections to drive home his point that the Indian growth story presents a picture of 'stability and strength'. Indian economy in the last three years has grown at an annual average of 8 per cent. The RBI's growth projection for the current year is 7.2 per cent and international agencies like the IMF and Moody's have given a growth projection of 7 per cent. 

The governor was delivering the keynote address at the launch of the Kochi International Foundation (KIF), a platform of influential personalities from diverse fields, modelled after the New Delhi-based India International Centre, at Crowne Plaza Kochi.

During the address, Das said India could wade through the "turbulent times" with a series of steps taken by the RBI. He also said it was equally important what the country, and especially the central bank, did not do.

Interest cut & injection of liquidity
The RBI governor said when the pandemic set in, one of the key measures it took was to cut  interest rates significantly. "We reduced the interest rate by 1.15 per cent. We injected a whole lot of liquidity into the market through the banks. Our endeavour was to ensure that economic activity must continue," he explained.

"We also provided a resolution framework for restructuring of bank loans and loans availed from the NBFCs for individuals as well as for businesses. Because when your business talks, when individuals do not get their income, how do they repay their loan installments? So, we provided a relay package at that time. So we acted very quickly and decisively," he said.

Das said the RBI was also aware of the risks of excess liquidity being left long in the system, "In the financial system, if you have a huge amount of liquidity floating all around, it results in high inflation. In India, the liquidity we provided was huge. But we injected liquidity in a very measured and calibrated manner. And every time we injected liquidity, we injected it for limited periods, not open-ended. So we knew that the liquidity had to be pulled back," he said.

Das said that when the Ukraine war triggered inflation, the RBI immediately increased interest rates. "We front-loaded our action, and we started pulling up. We had already started draining out liquidity. In parallel, the government also took several supply-side measures, which helped us bring down inflation," he said. 

The RBI Governor exuded confidence that significant moderation of inflation will happen from December onwards. "If you look at the Indian inflation story, it is moderating, with, of course, periodic humps. It goes up in between, but then again, it comes down. But overall, our inflation is moderating. And that was possible because we took very proactive and immediate action from the Reserve bank to deal with this problem," he said.

What RBI did not do
The RBI governor said withstanding the 'pressure' to print more notes was a crucial measure of what the central bank did not do to survive the crisis. He said the RBI was aware that printing more notes would eventually lead to high inflation.

"Many countries opted for that kind of policy and faced inflation far more deep-rooted than our inflation problem. We resisted all expectations of all experts, nudging and appealing. We faced criticism also at that time. But we held our ground, and we did not print notes. And retrospectively, it is now realised and appreciated that we did the right thing at that time," he said.

The governor was also proud of the RBI's decision to avoid negative interest rates. "In many other countries, their central banks reduced their interest rates to practically zero or below zero. We kept our interest rates at 4 per cent, the same as our inflation target. Therefore, making the recovery easier was easier for us," he said.

The governor said the RBI was also careful not to compromise on its balance sheet. "We gave liquidity only to the banks, not to any other financial entities. We provided liquidity against high-quality assets," he said.

The RBI governor said in taking all the corrective measures, "simple and straight" communication with the public was used as an instrument of policy. 

KIF a new beginning
Dr M Ramachandran, former Secretary of the Ministry of Urban Development, Govt of India and former Chief Secretary of Uttarakhand, one of the founders of KIF, said the launch of the foundation is a new beginning for the city.

He said the foundation will be an exclusive community of people from business, finance, education, literature, the judiciary, science and technology, public administration, sport, and culture, among others. 

The other founders of KIF, including Justice (Retd.) Satheesachandran; Dr Viju Jacob, Executive Chairman of Synthite Industries; Paul Antony, former Chief Secretary; Dinesh P Thampi, VP and Head of TCS Kerala; Madhu Radhakrishnan, Lawyer; and Maria Abraham, Executive Editor of Dhanam Publications, also attended the event.