RBI prescribes reforms list for post-COVID recovery

26-Aug-20

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The RBI has prescribed several reforms to get the economy back on the rails after the rollback of various stimulus measures taken to counter the lockdown-induced economic damage.
These include a concrete plan to rein in fiscal deficit instead of kicking the can down the road, targeted tax sops to create employment, and sale of assets to improve liquidity.
The Indian economy is expected to shrink more than 5% this fiscal and by 25% in the June quarter. Fiscal deficit is expected to soar to nearly 7.5% of the GDP from the desired 3%. So the government needs to augment its resources.
“Targeted public investment funded by monetisation of assets in steel, coal, power, land, railways and privatisation of major ports by central and state governments under an independent regulator can be the way forward to revive and crowd in private investment.
While industry and lobby groups have been rooting in favour of a dilution of the bankruptcy regime, the central bank said that for manufacturing to take off, there is a need for infrastructure of global standards and an efficient bankruptcy process.
The RBI reacted quickly to the pandemic by declaring a payment moratorium, cutting rates and boosting liquidity. But it is now stressing that these are temporary measures and that it would not repeat past mistakes when such measures were allowed to continue in the aftermath of the 2008 crisis. The failure to roll back in 2009-11 led to an inflation surge, a currency crisis, and caused financial instability as bad loans reached record highs.
The government also provided backstop to loans to small firms and suspended the bankruptcy law. Nonbanking financial companies and mutual funds were provided a liquidity window to ease financing pressures.

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