Are the new RBI measures in the right direction? An article by Dr. Alok Pandey, Dean, School of Management, GD Goenka University

Following the commencement of COVID-19 in March 2020, India imposed one of the world's most draconian lockdowns. The concept was to ramp up the healthcare system, including secondary and tertiary healthcare institutions, vaccination, healthcare, and other auxiliary equipment production operations, in order to combat the pandemic. Steps were also taken to simplify import procedures for medicinal substances, ventilators, and oxygen-producing equipment.

Exports of various critical products needed to battle the epidemic in the nation were prohibited. The most severely affected industries and service sectors were tourism, hospitality, restaurant, retail, and financial services. According to estimations, lockdown 1.0 resulted in a monetary loss of nearly $4.0 billion a day. The second wave of the pandemic has been far more lethal than the first.

With this second wave, the epidemic has claimed over 2.38 lakh deaths in India, with moreover 2.19 crore infected cases as of today. The reasons for this catastrophe have been highlighted as a lack of medical oxygen supply chain, as well as a shortage of vital drugs, equipment, hospital beds, and healthcare workers. Aside from the courts and the federal and state governments, the RBI has taken notice of the dire situation generated by the second wave. Let us examine in-depth if the RBI's actions are on the correct path

RBI's Initiatives

The RBI Governor declared an immediate increase in financing for all stakeholders, including government, hospitals and dispensaries, pathologist, pharmacies, pharmaceutical and vaccine manufacturers/ importers, medical oxygen manufacturers/ suppliers, private operators engaged in the critical healthcare supply chain, small businesses, and financiers, in a targeted policy response on Wednesday, May 5, 2021.

Banks have been given a 50,000 crore on-tap liquidity window with tenors of up to three years at the repo rate and under the priority sector COVID-19 lending program if credit is issued till March 31, 2022. Furthermore, banks will be able to park their excess liquidity with the RBI through the reverse repo window at a rate that is 25 basis points lower than the repo rate up to the amount of the COVID-19 loan book.

Other Multiple initiatives are taken by the RBI

Last year, the RBI was successful in providing abundant liquidity to domestic financial institutions through innovative initiatives such as TLTRO (Targeted Long Term Repo Operations), and In April 2021, the average daily net liquidity absorption under the liquidity adjustment facility (LAF) was 5.8 lakh crore. The recently finished G-SAP 1.0 auction for 25,000 crores drew a large response and was oversubscribed. On May 20, 2021, another auction for the acquisition of government securities in the amount of 35,000 crores will be held under G-SAP 1.0.

This has resulted in rates falling below 6.0 percent, providing respite to the whole financial sector. Special three-year long-term repo operations (SLTRO) of ten lakh crores at repo rates have been announced for Small Finance Banks till October 31, 2021, to be used for new lending of up to ten lakh per borrower. This would aid in the provision of loans to individuals in the unorganized sector, small companies, and micro and small enterprises.

To alleviate pandemic-related stress on banks' balance sheets, they have been permitted to use 100 percent of their floating provisions/counter-cyclical provisioning buffers as of December 31, 2020, for making particular provisions for NPAs up to March 31, 2022. Similarly, the maximum number of days of overdraft (OD) in a quarter has been increased from 36 to 50 days, and the number of consecutive days of OD has been increased from 14 to 21 days, until September 30, 2021.

Measures to increase liquidity

The RBI's efforts to provide liquidity for the healthcare infrastructure are admirable. The onus is now on all parties to ensure that monies are used quickly to expand healthcare facilities across India. Despite the initiatives made by the RBI to enhance liquidity in the system while maintaining interest rates low, borrowers' response to credit offtake remained lukewarm last year. Small depositors, notably older folks, were, on the other hand, negatively impacted by the interest rate cut. To guarantee that the RBI's actions are effective, state governments must stop Lockdown 2.0 as soon as possible.

Lockdowns have limited long-term efficacy and are absolutely worthless in the absence of adequate medical facilities and vaccination programs. Lockdowns have a long-term negative impact on businesses and communities. Citizens' physical and emotional well-being is also jeopardized. Lockdowns hinder economic activity and frequently put disadvantaged sectors of society into poverty.

According to a recent CMIE analysis, Lockdown 1.0 of 2020 drove nearly 23 crore Indians below the poverty level. Poverty is a sickness, and it is likely to be more harmful than any illness. Because the impoverished have limited access to nourishment, medicine, and healthcare, their immunity suffers. As a result, poor populations have a greater mortality rate during pandemics. According to current empirical findings, blacks and the poor in the United States and numerous other nations were the worst impacted in the initial COVID wave of 2020.

The time has come for all stakeholders to work together within the Indian federal system and support the Reserve Bank of India's actions to ensure the expansion of healthcare services as well as the economy's rapid opening. A rapid economic recovery would provide livelihoods for millions of impoverished people in this country, as well as the resources to receive healthcare, immunization, and proper nutrition. This is the only method to assure that Indian residents can protect themselves and their loved ones from the fast-changing virus that is causing the COVID-19 epidemic.

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