At last never before perfect Coordination between the Central Government and RBI is a reality.

 It is really heartening to observe that The Reserve Bank of India while keeping its well recognised professionalism and statutory commitment intact, has come out with its very accommodative and supportive bold   monetary policy   to secure not only monetary stability in India but also to meet the challenges of an increasing complex economy which got badly hurt due to the unprecedented and unheard of covid 19 pandemic.  The monetary policy gives the much needed fillip   to maintain price stability and ensure economic growth overcoming the uncertainties and hurdles from all fronts particularly the financial markets, institutions and instruments. The readiness and assurance from the Governor to act as per the requirements of the dynamics of the economy would definitely set the foundation strong to make the economy perform and deliver as per the expectations of the Government to reach the$ 5 trillion at the earliest.  

With this very liberalised and bold approach both from the Government and the RBI the economy can enter the fast track soon and leave aside all the negatives so far faced to kick start the economy and make it perform to its full potential. Very imaginative and innovative fiscal policies of the Central Government and the very accommodative and supportive monetary policy of the Central Bank, the path is clear now for the economy to move fast and the never before Perfect Coordination between the Central Government and RBI now visible can help the economy only to move in one direction i.e. to move up and forward without looking back and with record breaking results all around.

The RBI’s conservative estimate of GDP growth at 10.5% as against the Economic Survey’s projection of 11% and its policy stance to continue to be accommodative to achieve this growth keeping the inflation at 5.2% well within the band fixed by the Monetary Policy Committee give both encouragement and relief for all the vital sectors to perform under the favourable environment   of financial and monetary stability. The key take away of the policy is to keep the policy rate unchanged at 4%, Reverse Repo rate at 3.35%, MSF and bank rate at 4.25%.which will help to put into optimum use the resources at the command of the borrowers, market operators and the Government without any uncertainties on the availability of liquidity, reasonably cheap credit both from India and abroad, and other needed support for production, transportation and distribution. The restoration of CRR in two phases to 4%,, support to NBFCs by way of LTRO facility on tap scheme and measures to streamline digital payments system, strengthening of the banking Ombudsman, better regulation of Cooperative banks and NBFC segments are some of the measures well intended to reinforce the much needed credibility in the effective functioning of institutions in the financial markets. Once the Financial System gets well stabilised in terms of healthy, sound and dynamic financial institutions, with stable, dependable, deep, wide and sound markets and dynamic and comparatively risk free products, the end users of the system i.e. the producers of all kinds of goods and services and the consumers can become active without any hesitation of any kind and the result is nothing but the growth of the economy. Governance of the financial system is the key to the development and the Reserve Bank seems to be very much alive to the requirement as is evidenced by many of its policy initiatives highlighted in the policy announcement. The notable highlight of the policy is the opening of the Government Securities Market to retailers and that too by allowing them to have accounts with the Reserve bank direct. This can help not only to widen and deepen the securities market but also strengthen the entire financial markets in varied ways helping the market players to be innovative and find ways and means to contain undue volatility, minimise mismatches in their balance sheets. This may also bring some solace to the Government to its fiscal balancing exercise.   

The development of infrastructure is the key to kick start the economy and the Government’s liberalised approach despite financial constraints and regulatory disciplines on the fiscal deficit front is an exceptionally bold step in the present precarious conditions the economy has been dragged in. This should pave way to enhance the long overdue demand driven expansion of the economy all round in terms of manufactured products, generation of employment, movement of goods and services. Various budgetary provisions seem to have bolstered the confidence level at all levels of investors, producers, service providers, and all those who matter in the matter. Once the confidence in the capability of our full potential to take the economy forward is regained fully, there cannot be any sort of stumbling block is what is made known through this years’ budget although there are some gaps left in some areas like satisfying the lower middle class, pensioners, vulnerable senior citizens, many in the unorganised sector and tourism as well.

All said the fact remains that this year’s budget announcement closely followed by the Reserve Bank’s very supportive monetary policy announcement has given a morale boost to all stake holders of the economy to perform well.  It is very apt to quote here the observations of the Governor of the Reserve bank when he concluded his monetary policy announcement that “I would like to say that, going forward, the Indian economy is poised to move in only one direction and that is upwards. It is our strong conviction, backed by forecasts, that in 2021-22, we would undo the damage that COVID-19 has inflicted on the economy. After the chaos and despair of the year gone by, through which we have sailed together and shall continue to sail ahead, the overall situation can be best described in the words of Mahatma Gandhi, “We are daily witnessing the phenomenon of the impossible of yesterday becoming the possible of today …”

The perfect understanding and the coordination (which was missing for decades) expected of the Central government and the Central bank in initiating economic and monetary policies in the best interests of the Economy and the people seem to have at last reached now and this augurs well for the all round welfare of all .Good Going indeed to realise the dream Atmanirbhar Bharath.

TVG Krishnan

5/2/2021