Coronavirus has RBI worried; Das says India needs contingency plan

NEW DELHI: Monetary policy committee of the Reserve Bank of India on Thursday said the rapidly spreading coronavirus may impact India’s economy.

Talking to reporters after policy announcement, Das said the extent of impact of coronavirus is still uncertain and unfolding, as he made a case for preparing a contingency plan to deal with the situation and its impact on the economy.

The committee in a statement said the virus may impact tourist arrivals in India and global trade. The death toll from the coronavirus in mainland China jumped by 73 to 563, with total confirmed infections standing at more than 28,000 there.

"Equity markets rallied across AEs and EMEs, turning bearish towards end-January with the outbreak of the coronavirus as markets braced up for the likely adverse impact on growth prospects, particularly in China," the RBI said in a statement. It noted that crude oil prices have dipped sharply due to sell-offs triggered by the outbreak of the coronavirus.

The committee pegged India to grow at the rate of 6 per cent in fiscal year 2021. The GDP may grow in the range of 5.5-6.0 per cent in the first half and 6.2 per cent in Q3FY21. The committee said that the rationalisation of personal income tax rates in the Union Budget 2020-21 should support domestic demand along with measures to boost rural and infrastructure spending.

The committee said several high frequency indicators of services have turned upwards in the recent period, pointing to a modest revival in momentum. Though, it added that the outlook was still muted.

Tractor sales grew by 2.4 per cent in December while domestic air passenger traffic – an indicator of urban demand – posted double digit growth in November, followed by a modest growth in December. Growth in three-wheeler sales and railway freight traffic has accelerated, while port traffic turned around in December.

The PMI services index improved to 55.5 in January 2020 from 52.7 in November 2019, boosted by a rise in new business and output.