Economy recovering, but not enough for RBI to pull back liquidity support: FM

Exports have grown, tax collection is on the rise, and it is obvious that the Indian economy is recovering, said Finance Minister Nirmala Sitharaman said on Thursday. Yet, the economy has not yet reached the level where the Reserve Bank of India (RBI) can begin pulling back liquidity support, she added.

“I am glad the RBI understands that quicker retrieval of liquidity from the economy may not do the necessary things to win,” a Reuters report quoted her as saying at a virtual conference with industries. “They have not given any indication about wanting to suck out the liquidity that is available there.”

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The government is willing to do everything required to revive the economy, Sitharaman said. Also, the time has come for industry to come forward and push economic recovery via investments, she added.

Inflation and growth

The Finance Minister further said the government will take measures to contain inflation, but growth will be a priority as the economy battles the effects of the pandemic.

India’s inflation has been above the RBI’s tolerance band of 6% for the last two months, said the Reuters report. The central bank therefore raised its inflation forecast while holding key rates at record lows earlier this month.

To help the economy recover from the pandemic led-disruption, RBI has announced various measures over the past 18 months. It has pumped in massive amounts of liquidity, said the report, citing measures such as open market operations. This left the banking system with an average surplus of around ₹6 trillion, it added.

Committed to disinvestments

The Centre has announced plans to privatise various organisations such as Bharat Petroleum and Life Insurance Corporation. It is committed to these privatisation goals, said the FM today. The proceeds of the divestment, along with robust tax revenues, will help it reach its fiscal deficit goals, Reuters quoted her as saying.

The government is looking to narrow its fiscal deficit to 6.8% by the end of fiscal 2021-22, vis-à-vis 9.30% last year.