Stronger-than-expected pick up in recovery, Covid rise a downside: Shaktikanta Das

RBI Governor Shaktikanta Das addresses the press in Mumbai. (Express Photo: Nirmal Harindran, File)

Reserve Bank of India (RBI) Governor Shaktikanta Das on Thursday said the economy has exhibited stronger-than-expected pick up in momentum of recovery but cautioned about the “sustainability of demand”.

The recovery has come after witnessing a sharp contraction in GDP by 23.9 per cent in the first quarter of 2020-21 and a multi-speed normalisation of activity in the second quarter, he said.

Das said the global economy has also witnessed a stronger-than-expected rebound in activity in the September quarter. The IMF has accordingly revised its assessment for global growth in 2020 to a less severe contraction than what was assessed in June 2020, he said.

“Even as the growth outlook has improved, downside risks to growth continue due to recent surge in infections in advanced economies and parts of India,” Das said in his address at the Annual Day of Foreign Exchange Dealers’ Association of India (FEDAI). The Centre is likely to release the September quarter GDP data on Friday.

“We need to be watchful about the sustainability of demand after festivals and a possible reassessment of market expectations surrounding the vaccine,” he said. The monetary policy guidance in October emphasised the need to see through temporary inflation pressures and also maintain the accommodative stance at least in the current financial year and into the next financial year, he said.

According to Das, a key source of resilience in recent months has been the comfortable external balance position of India supported by surplus current account balances over two consecutive quarters, resumption of portfolio capital inflows on the back of robust FDI inflows, and sustained build-up of foreign exchange reserves. “The government’s recent policy focus to enhance India’s participation in global value chains, including through production linked incentives for targeted sectors, can leverage on the strong external balance position of India,” he said.

He assured that the Reserve Bank “remains committed to fostering orderly functioning of financial markets and will continue to evaluate incoming information having a bearing on the financial markets and act, as needed, to mitigate any downside risks”.

Das said domestic financial market conditions which were benign at the start of the year witnessed severe stress and dislocation as the pandemic unfolded.

“The RBI acted proactively and nimble-footedly to ease financial market conditions and mitigate risks with a slew of conventional and unconventional measures,” he said.

‘Capital account convertibility is a process’

Mumbai: RBI Governor Shaktikanta Das has said capital account convertibility of the rupee will continue to be approached as a process rather than an event, taking cognizance of prevalent macroeconomic conditions. “A long term vision with short and medium term goals is the way ahead,” he said at a FEDAI event.
“Today, the capital account is convertible to a great extent. Inward foreign direct investment (FDI) is allowed in most sectors and outbound FDI by Indian incorporated entities is allowed as a multiple of their net worth,”
Das said.

 

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