Covid second wave impact on economy not as bad as first wave, says RBI, calls for faster inoculation

Covid second wave impact on economy not as bad as first wave, says RBI, calls for faster inoculation

The services sector suffered heavily as activity in contact intensive services came to a near standstill in the initial period of the pandemic.

Reserve Bank of India (RBI) said in its annual report on May 27, 2021, said that stress tests indicate that Indian banks have sufficient capital at the aggregate level even in a severe stress scenario.

Bank-wise as well as system-wide supervisory stress testing provide clues for a forward-looking identification of vulnerable areas, the RBI said in the report.

While discussing the impact of the second wave of Covid infections, the central bank said the country's growth prospects now essentially depend on how fast India can arrest the second wave of COVID-19 infections.

"The recovery of the economy from the COVID-19 will critically depend on the robust revival of private demand that may be led by the consumption in the short-run but will require acceleration of investment to sustain the recovery," the central bank said in its annual report.

The services sector suffered heavily as activity in contact intensive services came to a near standstill in the initial period of the pandemic. Even as contact intensive sectors like aviation, tourism, and hospitality suffered grievously, it added.

The RBI also mentioned that India can prepare for the year ahead with confidence and fortitude. Faster vaccination holds the key to an escape from the pandemic, it added.

India on Thursday posted 211,298 new coronavirus cases over the past 24 hours, while deaths from COVID-19 rose by 3,847.

RBI said central and state government deficits could rise when revised estimates are released and high levels of deficit and debt could pose challenges in financing once private investment picks up.

RBI said its balance sheet increased by 6.99% in FY21 to 57.08 trillion rupees ($785.7 billion), mainly reflecting its liquidity and foreign exchange operations. The bank's income decreased by 10.96% but its expenditure also fell by 63.10%, it said.

The central bank reported net gains of 506.29 billion rupees from its foreign exchange transactions in FY21 as against 29.993 billion rupees in FY20, a key contributor to the 73.5% higher surplus transfer to the government last week apart from its higher interest income.

RBI's board approved a significantly higher than expected surplus transfer of 991.22 billion rupees to the government last Friday, but it may not be enough to cushion the damage from a crippling second wave of the novel coronavirus.

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RBI added that reform measures in various areas were likely to improve India's growth potential on a sustainable basis.

RBI to ensure liquidity

The RBI will ensure that system-level liquidity will remain comfortable during 2021- 22 in alignment with the stance of monetary policy, and monetary transmission continues unimpeded while maintaining financial stability, the RBI said.

"This is exemplified by the introduction of the secondary market G-sec acquisition programme (G-SAP) in 2021-22 under which the Reserve Bank has committed upfront to a specific amount for open market purchases of G-secs with a view to enabling a stable and orderly evolution of the yield curve under congenial financial conditions," the RBI said.

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