The Monetary Policy Committee of the Reserve Bank of India has decided to keep interest rates steady for the time being but with a more accommodative stance, which one could read as allowing banks to be more liberal with disbursals. The meeting ended and the stock exchanges celebrated by climbing, not massively but still enough to display their approval of the decision. The RBI, however, expected the economy to contract by 9.5 per cent in the 2020-21 fiscal, thanks to the effects of the Coronavirus pandemic and the subsequent lockdown. However, one must ask whether the RBI is being a bit too optimistic, with several financial firms and ratings agencies predicting that India will have a double-digit economic contraction this year, thanks to the near-total loss of economic activity in the first quarter. But could there be a reason behind the RBI’s optimism? Some of RBI’s measures include rationalisation of risk weights to all new housing loans until March 2022, which is expected to ease credit availability for the real estate sector. Across several industries, demand has been picking up even before the start of the festive season. Car companies saw wholesale orders pick up dramatically in September. Sales of computers, mobile phones and other electronic peripherals have also increased dramatically. While some industries have changed forever thanks to the pandemic, things are even improving in sectors like hospitality. Deep Kalra, Chief Executive of online travel agency MakeMyTrip, mentioned in The Pioneer Conversations that hotels and resorts are getting booked out for weekends and people are indulging in “revenge travel.” Sure, things are not back to normal and they may never go back to normal or even recapture the sense of business as usual for at least another two years. However, things are improving and may be the third and fourth quarters of this fiscal year will be stronger than that of the past year and that is why the overall decline for the entire year could be less than expected.

At the end of the day, economic growth is a confidence game and if that is returning in the economy, it is contingent upon the Government and the RBI to ensure that it is sustained. India has not jumped in with a massive demand-side intervention as yet but slight rate cuts in GST or even direct taxes could see India’s top consuming class really start spending more, which might help India emerge even stronger from the pandemic. But we still feel it is too early to have such an optimistic outlook.

(Courtesy: The Pioneer)

The Monetary Policy Committee of the Reserve Bank of India has decided to keep interest rates steady for the time being but with a more accommodative stance, which one could read as allowing banks to be more liberal with disbursals. The meeting ended and the stock exchanges celebrated by climbing, not massively but still enough to display their approval of the decision. The RBI, however, expected the economy to contract by 9.5 per cent in the 2020-21 fiscal, thanks to the effects of the Coronavirus pandemic and the subsequent lockdown. However, one must ask whether the RBI is being a bit too optimistic, with several financial firms and ratings agencies predicting that India will have a double-digit economic contraction this year, thanks to the near-total loss of economic activity in the first quarter. But could there be a reason behind the RBI’s optimism? Some of RBI’s measures include rationalisation of risk weights to all new housing loans until March 2022, which is expected to ease credit availability for the real estate sector. Across several industries, demand has been picking up even before the start of the festive season. Car companies saw wholesale orders pick up dramatically in September. Sales of computers, mobile phones and other electronic peripherals have also increased dramatically. While some industries have changed forever thanks to the pandemic, things are even improving in sectors like hospitality. Deep Kalra, Chief Executive of online travel agency MakeMyTrip, mentioned in The Pioneer Conversations that hotels and resorts are getting booked out for weekends and people are indulging in “revenge travel.” Sure, things are not back to normal and they may never go back to normal or even recapture the sense of business as usual for at least another two years. However, things are improving and may be the third and fourth quarters of this fiscal year will be stronger than that of the past year and that is why the overall decline for the entire year could be less than expected.

At the end of the day, economic growth is a confidence game and if that is returning in the economy, it is contingent upon the Government and the RBI to ensure that it is sustained. India has not jumped in with a massive demand-side intervention as yet but slight rate cuts in GST or even direct taxes could see India’s top consuming class really start spending more, which might help India emerge even stronger from the pandemic. But we still feel it is too early to have such an optimistic outlook.

(Courtesy: The Pioneer)