MPC member Michael Patra is of the view that the damage to the economy is so deep and extensive that India’s potential output has been pushed down, and it will take years to repair
The macroeconomic impact of the coronavirus pandemic, which brought economic activity across sectors to a virtual standstill, is turning out to be more severe than initially anticipated, according to the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI).
The minutes of the MPC's May 20-22 meeting were released by the central bank on June 5.
On the economic outlook, the MPC noted that various sectors of the economy are experiencing acute stress, with the impact of the shock having been compounded by the interaction of supply disruptions and demand compression. It noted that the inflation outlook for the months to come was highly uncertain. With respect to the growth outlook, it had said, "economic activity other than agriculture is likely to remain depressed in Q1 FY21 in view of the extended lockdown."
MPC member Michael Patra said the damage to the economy is so deep and extensive that India’s potential output has been pushed down, and it will take years to repair. "Apart from the unidirectional loss of speed in real GDP growth, monetary conditions are also reflecting the fragile state of demand," he added.
RBI Governor Shaktikanta Das, while pointing to the uncertainty as to when the COVID-19 curve will flatten, had said," Even as the supply side is expected to ease gradually, as the lockdown related restrictions are phased out, it is the demand side which will continue to weigh heavily on economic activity for some time to come."
The central bank had accordingly announced a repo rate cut of 40 basis points, bringing it down to the current 4 percent. It had also maintained its accommodative stance.
