RBI lends helping hand in Covid war, but immediate future remains worrisome

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RBI Governor Shaktikanta Das on May 5 announced a series of measures to bolster the financial sector’s armoury to fight Covid-19 fallout. These included measures to bolster liquidity and provide faster disbursal of credit to the healthcare sector, support to small finance banks (SFBs) for delivery of last mile supply of credit to individuals and small businesses including micro and small industries, and other unorganised sector, measures to enable state governments to better manage their fiscal situation and relief for bank customers on the Know Your Customer (KYC) front by providing some relaxations.

The measures show the keenness and the agility of the central bank to support the government and all other Covid warriors as the country fights the war against the invisible virus.

While the measures will help various sectors, it is the larger picture that emerges from the RBI Governor’s speech that is worrisome. Though Das had some optimistic messages to share, there were also clear indications or early warnings of the possible tough times that lie ahead for all of us.

Outlook

Amid the gloom, Das has said that “the country’s future remains bright even with India set to emerge as one of the fastest growing economies in the world”. However, on the flip side, Governor Das did not try to underplay the unfolding situation and kept raising the warning flags. He has pointed out that the activity in the global economy “remains uneven across countries and sectors. The outlook is highly uncertain and clouded with downside risks.” On the domestic front, he said that small businesses and financial entities at the grass-root level are bearing the biggest brunt of the second wave of infections.

Much as we may try to project the country’s ability and resolve to fight the pandemic, the coming days are unlikely to bring any cheerful news on the Covid front, drowning any optimistic note. The healthcare system is on its brink and healthcare workers are sapped of energy, both physical and mental, as the flow of patients refuses to ebb.

Healthcare funding for Covid-19 fight

The government and RBI assessment on the healthcare front is surely that the existing resources are not adequate to tackle the sudden and exponential rise of infections and the hospitalisation. Little wonder that the Governor announced an Rs 50,000 crore on-tap liquidity window for lender of up to three years at the repo rate is being opened till March 31, 2022 for various segments of the healthcare system including vaccine manufacturers, importers/suppliers of vaccines and priority medical devices, hospitals/dispensaries and pathology labs and importers of vaccines and COVID related drugs. Nothing could have been more appropriate than providing such a window at this critical time when the entire healthcare sector needs liquidity as oxygen.

The unfolding situation in the country is surely going to get much worse before the Covid curve bends the other way for good. Lockdowns and other restrictions, however selective, will surely impact the growth engine. The rising travel bans from India by foreign governments will add to the pain.

For the past several weeks, the news and visual images from the hospital have been heart-wrenching. The entire country has to pull all its might together to defeat Covid-19. It will be a protracted war. This is surely not the last time we heard from RBI on Covid 2.0.