In developing the previous monetary policy, the Reserve Bank of India (RBI) held its ears to the ground. The spike in Covid-19 events, which has triggered a vicious second wave, has accelerated the recovery trajectory by a fifth if not two.
The rate of Covid-19 vaccination has been slower than anticipated, raising concerns about the time frame for bringing the pandemic under control. Currently, in the best-case scenario, this seems to be a 9-10 month vaccine regimen to hit the comfort thresholds. I’m sure the government is considering speeding up delivery processes and ensuring an adequate supply of vaccines. As a result, limited lockdowns/locational disturbances and other restrictions will continue in the coming months. This will trigger some collection as well as demand disturbances.
All of this is bound to affect the economy, putting the economy’s growth forecasts, even as recently as a month ago, at risk.
In such a scenario, it stands to reason that the RBI’s stance would be more accommodating and supportive of development. We will see a significant difference in implementation efficiency as all countries aim to do this over the next 12 months.
Hopefully, India will be one of the countries that emerge from this year with a good tailwind, ready to enter a solid favorable growth period. The bad news is that the possible economic disruptions caused by the next wave of Covid-19 could muffle credit growth at a time when it was only beginning to show signs of recovery. Asset quality concerns in the financial sector could resurface.
Coordinated actions by the government and the RBI over the last year helped ensure the flow of credit and financial support to the economy’s most vulnerable segments, such as MSMEs and other Covid-19-impacted sectors. They allowed these segments to survive the crisis. As we move forward, the RBI and the government must work together to ensure a regulated and smooth exit from this situation.