The RBI, he said, is “very serious about anchoring inflation expectations and inflation around the target” of 4%. Sticking to the 9.5% growth projection for 2021-22, the RBI Governor said there is no evidence that asset prices, and to some extent the current high stock prices in India, are actually influenced by excess liquidity.
Reserve Bank of India (RBI) Governor Shaktikanta Das on Thursday expressed optimism about the recovery in the Covid-hit economy, stating the current quarter (July-September) will be better than the previous June quarter. The RBI, he said, is “very serious about anchoring inflation expectations and inflation around the target” of 4%.
Sticking to the 9.5% growth projection for 2021-22, the RBI Governor said there is no evidence that asset prices, and to some extent the current high stock prices in India, are actually influenced by excess liquidity. He maintained that the RBI is watching growth impulses and inflation before making any changes in its accommodative policy stance.
In a conversation with P Vaidyanathan Iyer, Executive Editor (National Affairs), The Indian Express, and Amy Kazmin, South Asia Bureau Chief, Financial Times, Das said, “The fast-moving indicators are looking quite upbeat. We track about 100-odd fast-moving indicators, and I can mention some of them, like the sale of two-wheeler vehicles, the sale of passenger cars, or the steel and cement production and GST and several parameters and indicators are looking up.”
This is the third in a series of online agenda-setting debates organised by The Indian Express and the Financial Times.
According to Das, at this point of time, RBI’s projection of 9.5% growth for this financial year stands. “I think it will hold good. The second quarter of the current year, that is the current quarter, will do better sequentially than the previous quarter. But there is a base effect of last year, which will have its impact throughout this year, but the base effect will gradually moderate going forward,” he said, on the economic growth.
However, he qualified the optimism on the possibility of a third wave of Covid pandemic. “I must say that uncertainty of a possible third wave, which people are talking about… that uncertainty still remains. I think people and businesses are now more adapted to the Covid protocols and more adapted to continuing with their business activities and other activities, even when there is a problem.”
On the issue of inflation, Das said: “As I have also said in my own statement that the current inflation is mainly driven by supply side factors, partly because of international factors around high commodity prices, high shipping charges and container costs. Mostly, international commodity prices are going up, (and) that is feeding into domestic inflation.(The) domestic factors are the high prices of petrol and diesel, and also certain commodities, certain items, like appliances or edible oil.”
Inflation, which exceeded 6% for a couple of months, has moderated to 5.6% in the last print. “Our expectation is that from now on, inflation will gradually moderate. So, the possibility of a sustained increase in inflation beyond 6% is highly unlikely at this point of time, but nonetheless, we are watchful,” he said.
On resolution of stressed assets, he said, “This time, the resolution packages are not open-ended. They have a starting date, they have a completion date, and a time limit is set within which the restructuring of the loan portfolio has to be done… the banks will have to make provision in their books for all those restructured assets and that will act as a buffer.”
“Most of the banks including private and public sector banks have mobilised additional capital, which should stand to the defence. There is an increase in distressed assets, but as I have said, at the moment, the situation on the front of stressed assets is within manageable means,” he said.
When asked about the large haircuts in some of the resolutions, Das said, “The first thing about the Insolvency and Bankruptcy Code is that the measure of success of IBC is not what percentage of recovery takes place. Yes, it is an important factor, but the primary objective of IBC is resolution of bad assets to wherever possible… to resolve the business so that the company or the business continues its operations, and the economic value which that business creates continues unabated.”