75% economy below trend
Another tranche to alleviate hurt to demand and businesses is expected, following the Rs.1.7 trillion to help vulnerable parts of society, said Singapore bank DBS Group on 9 Apr 2020.
Yet fiscal response is still being waited upon, added DBS.
The Rs.1.7trn (0.8% of GDP), targeted help to vulnerable parts of society, was encouraging. These were targeted at alleviating hardship due to the lockdown, said the bank.
Elaborating, Rao pointed out that about 75% of the Indian economy is below trend. Taken from the demand-side, this is hurting consumption and investment activity.
Add to this, a third of personal final consumption expenditure is discretionary, items like spending on recreation, restaurants, travel etc.
Moreover, the distribution of the workforce shows that more than half of employment is made up by self-employed and casual labour.
Movement restrictions are likely to adversely impact consumption and employment prospects of these categories.
Weakening global growth outlook will also impinge on India’s trajectory, with DBS forecasts for US economy to contract -5% this year, Eurozone by -4.5% and China to grow 2%.
DBS highlighted the RBI’s supportive role. As states’ borrowing costs rise, the RBI has also aided by extending the duration of the overdraft facility as well as hiking the Way and Means Advances (WMA) threshold by 30% for states and UTs.
Expectations are high for more action particularly as risk-free yields stay sticky: a) participation in the primary auction (available for exceptional circumstances) for the bond markets; b) creation of a special purpose vehicle (SPV) to route purchase of corporate bonds, in a bid to arrest widening spreads vs Government Securities and temper volatility. fiinews.com
