PM praises RBI; Oppn says more needed

nNEWDELHI:PRIME Minister Narendra Modi said on Friday the second round of monetary measures by the RBI will enhance liquidity and improve credit supply. “These steps would help our small businesses, MSMES, farmers and the poor. It will also help all states by increasing WMA limits,” he tweeted.

Finance minister Nirmala Sitharaman said the RBI took a host of steps to maintain adequate liquidity in the system, incentivise bank credit flows, ease financial stress and enable normal functioning of markets.

Experts said the move will infuse more liquidity in the banking system and bring relief to borrowers, but the central bank’s ability to shield the economy from the adverse impact of covid-19 is limited and the government needs to come up with a major stimulus package.

“He is doing a tightrope walk by keeping the customers alive and banks not slipping into the red. Despite limitations, RBI governor has done what was within his capacity, but the government has not yet really stepped in with policy and fiscal measures required in this unprecedented situation,” economist Pronab Sen, former chief statistician of India, said.

A Nomura Global Market Research said the RBI governor had outlined measures to divert liquidity to the “have-nots” in the financial system by disincentivising banks from parking excess liquidity with the RBI and through regulatory easing measures for banks and shadow banks.

“Monetary policy will be in sync with fiscal policy, where we expect a second round of fiscal stimulus to be announced shortly following the first tranche of ~0.8% of GDP [gross domestic product],” the report said. Industry, which has been concerned about an acute liquidity crunch and slump in demand even as business activities resume partially next week, is expecting a booster dose of up to ₹16 lakh crore from the government. At least three government officials said requesting anonymity that the finance ministry is in discussion with the Prime Minister’s Office to finalise a comprehensive stimulus package soon.

According to DK Srivastava, economist and chief policy advisor at EY India, the reverse repo rate cut and increase in the WMA limits would “facilitate increase in economic activities as the lockdown is progressively eased.” The ways and means advance (WMA) is an instrument the RBI uses to provide enhanced temporary loan facilities to cash-strapped states. As per Assocham, companies want government to clear the ₹2.20 lakh crore owed to them by government departments and agencies.

Opposition parties urged the government to take more steps to mitigate the problems of the poor. Congress leader Anand Sharma also said the measures were “far too little” to meet the needs of industry”.