RBI Governor Shaktikanta Das (File image)
Reserve Bank of India Governor Shaktikanta Das has observed that India was able to pull itself out of all previous pandemics within two years.
“India has seen four such severe pandemics in the past and all these were followed by contraction and deceleration in the gross domestic product (GDP). Recovery was complete within two years of the outbreaks except in 1922,” he noted.
Das added that growth became “excessively dependent on government expenditure in prior pandemics.”
He made the remarks while addressing the Bombay Chamber of Commerce and Industry on February 25 on occasion of its 185th Foundation Day Celebration.
On the banking sector, Das pointed out that central banks used conventional and unconventional measures to combat impact of COVID-19 pandemic.
“The RBI did not compromise on core banking principles, unlike many other central banks. RBI purchases were confined to risk-free sovereign bonds and we will continue to support recovery by ensuring ample liquidity in the system,” the governor said.
Acknowledging that recovery in the services and trade sectors is “yet to gain traction,” Das noted, “Forward guidance gained prominence in our strategy to achieved desirable outcomes. Lower crude oil prices and weak demand early on squeezed India’s import bill significantly.”
He however added that India’s services exports have “gained traction from our software exports and the remittance inflows decline was more than offset by robust net exports of services and the lower import bill.”
“Surplus on current and capital accounts are reflected in the build-up of forex reserves,” he added.
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The RBI chief was also positive on the medium and small industries pointing out that the MSME sector “has emerged as the growth engine of the Indian economy.”
“MSMEs now contribute over 30 percent of nominal GDP and going forward the RBI stands ready to support SIDBI for credit support to MSMEs,” he stated.
SIDBI or the Small Industries Development Bank of India is one of the four All India Financial Institutions regulated and supervised by the RBI and provides refinance facilities and short-term lending to industries.
Das was also optimistic of penetration of digital services in India, noting that they have “scaled a new high.” He also noted the possibilities, saying, “India has 1.2 billion wireless subscribers and 750 million internet subscribers. Technology adoption in the rural areas can add high value to the agricultural sector.”