UPSC Prelims 2020: Economic Stimulus by RBI to Improve Economic Condition

Introduction

Ever since COVID-19 has put us into deep unforeseen trouble, the main focus of Indian Economy has been the Revival. Government of India and our Central Bank both are trying to come up with different stimulus with one main idea. i.e. How to put Production and Sales on line again with Pre COVID-19 scenario.

Although the road is not easy at all, there has been a consistent focus on this matter.

In today’s blog, I am going to elaborately provide you with some of the steps taken by our central Bank.

Reserve Bank of India consists of as many as 28 departments and 1 Vigilance Cell. So it will be quite hectic to go through all the departments and covering minute details of each ones’ initiatives. That also may be an inefficient use of time.

So What I going to do here is give you the important ones which may also be very crucial in your last ditch preparation.

Steps Taken by RBI

Monetary Policy Department

Special Refinance facilities for a total amount of INR 50000 Crore to NABARD, SIDBI and NHB to enable them to meet sectoral credit needs.
A line of Credit of INR 15000 Crore was extended to EXIM Bank to avail a USD swap facility to meet its foreign exchange requirements.
REPO rate was revised 3 times from August 2019 with the latest rate stands at 4.00.

The main objective has been to make sure that the Market has enough liquid money supply for the businesses to sustain this tough time.

Financial Markets Regulation Department

A separate route, Fully Accessible Route (FAR) for investment by NRIs in specified securities issued by the Government of India was introduced on March 30, 2020.
Trading hours for various markets under RBI’s regulation were revised to ensure to maintain checks and controls over the market.
Investment limits for FPI’s in Debt Securities under Medium Term Framework for FY 2020-21 were announced.

Checks and control measures in order to ensure safety in the investment market have been key.

Financial Inclusion and Development Department

Master direction on Priority Sector Lending was issued for Small Finance Banks (SFBs).
Sanctioned limit towards export credit for domestic SCBs was enhanced to boost credit to the Export Sector.
Lending by Banks to NBFCs for on-lending under specific categories was made eligible.
To identify one district in all States/UTs to be designated as Digital District, where the village will be made 100% digitally enabled.

Financial Market Operation

NEFT transactions are done on a 24*7 basis. For doing this an additional collateralized daily liquidity facility called Liquidity Support (LS) was provided to member banks.
Simultaneous Purchase of Long Term Government Securities and Sale of Short Term Government Securities under Open Market Operations (OMOs). First such auction was held in December 2019.
RBI has augmented its liquidity management toolkit by announcing the Long Term Repo Operations (LTRO) at a fixed rate to ensure the flow of credit to the economy. RBI also has announced Targeted Long Term Repo Operations (TLTRO) at a floating rate linked to Policy Repo. Banks which takes the facility need to invest in Grade Corporate Bonds, Commercial Paper and NCDs.

Image Source: The Hindu

6 month USD sell/buy swap auction to provide USD liquidity to the Foreign Exchange Market.
Special Liquidity Facility for Mutual Fund (SLF-MF). Liquidity availed under this scheme by Banks needs to be deployed exclusively on Mutual Funds.

Conclusion

It is almost impossible to discuss all the steps taken by RBI in one blog. So Macroeconomic parameters are described in this one. In our future blog, I am going to discuss the important aspects of RBI’s initiative in Micro Economic perspective.

Just remember the keyword, the main two objectives of RBI’s initiatives have been

To provide safety when it comes to foreign investment.
To make sure that there is ample liquidity in the Market.