Lockdown impact: RBI report confirms prolonged pain for rural economy

April 10
03:29 2020

The Reserve Bank of India (RBI) is of the view that the COVID-19 outbreak and the prolonged lockdown may have a devastating impact on the rural economy.

The Indian government on March 24 announced a 21-day nationwide lockdown to prevent the spread of the disease.

The government has announced a slew of measures like direct cash transfer to farmers, hiking wages under the MGNREGA scheme, and utilisation of welfare funds for construction workers to offset the adverse impact on rural demand.

There is a likelihood that the lockdown will get extended by at least till the end of this month.

“The recent outbreak of COVID-19 and the subsequent lockdown enforced in the country are expected to bring down the aggregate demand drastically, both in rural and urban areas,” the RBI said in its bi-annual monetary policy report.

Given the severity of the pandemic, rural demand is expected to go down further at least in the near future, the RBI said.

“The unusually lower agriculture prices, slowdown in the construction sector and below average performance of the flagship MGNREGA programme have contributed to lower farm incomes, deceleration in rural wages and loss of employment opportunities in the rural sector and, more so in the wake of Covid-19,” the central bank said.

Track this blog for latest updates on coronavirus outbreak

While the RBI report acknowledges that the monetary authorities and governments across the world have taken quick and coordinated actions to fight COVID-19 , it says there is little evidence as yet that they could mitigate the risks to the global economy from amplifying.

Central banks globally have slashed rates to tackle the COVID-19 impact. Last month, the RBI slashed repo rate, the rate at which it lends short-term funds to banks, by 75 basis points and announced a slew of liquidity measures to ease the stress on the financial system.

The central bank said while efforts are being mounted on a war footing to arrest its spread, COVID-19 would impact economic activity in India directly through domestic lockdown.

Second round effects would operate through a severe slowdown in global trade and growth, it noted.

“More immediately, spillovers are being transmitted through finance and confidence channels to domestic financial markets. These effects and their interactions would inevitably accentuate the growth slowdown, which started in Q1:2018-19 and continued through H2:2019-20,” RBI said.

Demand decline

In the wake of COVID-19, rating agencies and private forecasters said they expect economic growth to fall significantly in this financial year.

Goldman Sachs economists expect India’s GDP growth to plunge to 1.6 percent for fiscal year 2021 due to the impact of the Covid-19 pandemic, down from the earlier projection of 3.3 percent.

According to the RBI, private consumption, in particular, is at serious risk from the COVID-19 pandemic and investment is likely to decline.

“Aggregate demand is expected to be impacted adversely by likely recession in the global economy, caused by disruptions in global supply chains, travel and tourism, and lockdowns in many economies,” RBI said.

Due to the coronavirus-induced lockdown, most economic activities have come to a standstill.

Moneycontrol, citing the Google mobility data, recently reported that post-lockdown, India witnessed a 77 percent fall in public mobility to places including retail restaurants, cafes, shopping centres and movie theatres as compared to the corresponding five-week period from January 3 to February 6.

The near-paralysis in economic activities has begun to reflect on the employment scenario. The Centre for Monitoring Indian Economy (CMIE) has said that the unemployment rate shot up in March. In the last two weeks, the rate shot up to 23 percent.

Also Read | Coronavirus impact: Spike in unemployment rate in March points to more pain for Indian economy

Besides, a series of surveys conducted by the RBI to assess consumer confidence and industrial outlook too indicated a grim scenario ahead.

Follow our full coverage here

Time to show-off your poker skills and win Rs.25 lakhs with no investment. Register Now!

Related Articles