Economic activity has been hit badly by the two-month nationwide lockdown and as a result, growth outlook has deteriorated sharply and the country is likely face demand-side issues going ahead.

That’s the view RBI’s Monetary Policy Committee (MPC) took on the economy before slashing the short-term interest rate by 40 basis points last month.

Minutes of the MPC released on Friday showed RBI Governor Shaktikanta Das expressing concern that the impact of the pandemic on the domestic economy turned out to be far more severe than initially anticipated. The high-frequency indicators for March-April 2020 also suggested a collapse in demand.

“Bank credit growth continues to be tepid, suggesting weak demand,” he said, adding that supply-side is expected to ease gradually as the lockdown-related restrictions get phased out.

The governor said only the agriculture sector is showing a silver lining as summer sowing is progressing well. He said the overall GDP growth for 2020-21 is estimated to be in the negative territory.

Latest official data showed India’s GDP growth in 2019-20 slowed down to 11-year low at 4.2 per cent. “The pace of recovery will be contingent upon the containment of the pandemic and how quickly social distancing or lockdown measures are phased out,” Das said.

Barring Chetan Ghate, all other members of the monetary policy committee voted for a 40 basis points rate cut.

Ghate, who voted for 25 basis points rate cut, said the prospects of the economy have deteriorated further since the last review.

“Both three-month ahead and one-year ahead inflationary expectations have risen sharply (by 190 basis points and 120 basis points, respectively) in the latest RBI survey. This spike reverses a relatively flat trajectory for inflationary expectations over the past six rounds of surveys,” Ghate said.

He said the indicators point to dire growth outcomes in the near term.

Here’s what other MPC members said at the RBI policy meeting:

Pami Dua

Ravindra H Dholakia

• The fiscal boost given by the central government in several instalments is likely to result in further slippage of the fiscal deficit to GDP ratio of only 150 basis points.
• Once the situation returns back to normal and the fiscal and monetary boost measures start generating impacts, the recovering economy may require some further boost.

Janak Raj

• The impact of Covid-19 on economic activity has turned out to be much more acute than initially expected.
• Within aggregate demand, while private consumption is likely to slowdown from the pre-Covid-19 levels, what worries more is investment demand.
• Only banks with strong balance sheets could be expected to support lending activity as and when credit demand picks up.

Michael Debabrata Patra

• The damage is so deep and extensive that India’s potential output has been pushed down, and it will take years to repair.