MUMBAI: Reserve Bank of India (RBI) governor Shaktikanta Das on Monday squashed expectations of a V-shaped recovery and called for a policy focus on increasing India’s participation in global value chains.
“High frequency indicators of agricultural activity, the purchasing manager’s index and certain private estimates on unemployment point to some stabilisation of economic activity in the second quarter of the current year,” said Das, while delivering his address at an event organised by the Federation of Indian Chambers of Commerce and Industry.

“The recovery is, however, not yet fully entrenched and moreover, in some sectors, upticks in June and July appear to be levelling off. By all indications, the recovery is likely to be gradual as efforts towards reopening of the economy are confronted with rising infections,” said Das. The governor’s statement comes at a time when Covid infections have crossed the 50-lakh mark following the partial easing of the lockdown.

While the governor’s statement is seen as pessimistic, it is also being taken as a positive note for bond markets as this reduces the likelihood of the central bank raising interest rates even though inflation has been much above the RBI’s target range. Das said that while bond yields in August had risen 35 basis points (100bps = 1 percentage point) on the back of fears of inflation and oversupply of government bonds, the RBI managed to tame yields through open market operations.
Later, responding to a query on stricter rules being imposed for NBFCs vis-a-vis banks, Das said that the fragility and vulnerability of the NBFC sector was a concern. “They are still not on a par with banks in the matter of regulation and we don’t want a repeat of a crisis in another NBFC,” Das said. He pointed out that the RBI, which was following a light-touch approach in NBFC regulation, was forced to change its stance after the IL&FS crisis.
Calling for policy focus on export strategy, Das said that a view had emerged after the global financial crisis (GFC) that India had missed the bus by not prioritising exports. This was because in the years that followed, there has been rising protectionism and weak global demand. “Notwithstanding these impediments, and also the significant decline in trade intensity of world GDP growth in the post-GFC period, opportunities for expanding exports arise from the vastly altered global landscape for trade where more than two-thirds of world trade occur through global value chains (GVCs),” said Das.
“The higher the GVC participation of a country, the greater are the gains from trade as it allows participating countries to benefit from the comparative advantage of others participating in the GVC. Services such as transportation, banking, insurance, IT and legal services, branding, marketing, and after-sale services are integral to GVCs,” said Das. “It is also important to learn from global experience and nurture those trade agreements that go beyond traditional market access issues,” he added.



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