Economic slow down Current Affairs - 2020
On May 22, 2020, the policy committee met in an emergency meeting to review the current economic outlook and impacts of COVID-19.
The RBI has reduced the repo rate from 4.4% to 4%. It has reduced the reverse repo rate to 3.35%. The RBI also announced that the reduction in policy rate is to be provided as long as the economic growth in the country is to be mitigated.
Current Economic Scenario
The global trade is declining and the world is heading towards recession. The Indian Economic growth is also slowing down to a great extent in spite of GoI trying to infuse liquidity in to the market. The top six industrialized states that account to 60% of industrial production in the country now falls in red zone. This will affect India’s growth further as economic activities in red zones are not being operationalized to its fullest.
The rural and urban demand has been falling down. The manufacturing activity in the country has fallen down by 21% post COVID-19. Also, the output from core industries has fell by 6.5%.
Measures of RBI
RBI has announced 4 major economic measures to boost the economy. This includes measures to improve functioning of markets, measures to ease financial stress, measures to support exports and imports and measures to ease financial constraints faced by the state governments.
The measures are as follows
- RBI will provide another 90-day extension to offer loan facilities.
- Rs 15,000 crore line of credit allocated to EXIM banks
- RBI has increased export credit period from 12 months to 15 months.
- The term loan moratium has been extended till August 31.
- The group exposure limit of the banks has increased from 25% to 30%.
- The rules of Consolidated Sinking Funds have been relaxed. This will enable states to meet 45% of redemption of their market borrowing.
Tags: Economic slow down • EXIM Bank • Monetary Policy Committee • RBI • Repo Rate
With the increasing economic crisis, Helicopter Money is a solution being suggested by economic specialists all over the world.
What is Helicopter Money?
Helicopter Money was the term framed by an American Economist Milton Friedman. Helicopter Money is the monetary policy tool used for Quantitative Easing. It aims to dump money into a struggling economy.
Helicopter Money in simple terms is extension of non-repayable money towards state and central governments from central bank. The policy intends to make more money available for the people to nudge them to spend more.
Helicopter Money in Indian Economy
In India, Telangana Chief Minister K Chandrashekar Rao has suggested the concept for the state governments to revive economic growth. He asked the RBI to release 5% of GDP as Helicopter money.
Apart from the Telangana CM, CII has also recommended similar arrangement. CII has also recommended direct cash transfer of Rs 5000 to all the account holders whose annual income is below Rs 5 lakh. The Confederation of Indian Industries (CII) has recommended money transfer as one time action.