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An optimistic Governor of the Reserve Bank of India (RBI) Shaktikanta Das expressed hope that notwithstanding the current resurgence in Covid-19 cases, India’s economic revival would continue unabated. Going a step further, the RBI Governor stressed that there was no need for a downward revision of the country’s estimated GDP growth rate of 10.5 per cent in Fiscal Year (FY) 2021-22. Das asserted that in order to pave way for economic revival RBI would use all its policy tools. At the same time, the RBI Governor has divulged two valuable pieces of information. Firstly, the country’s foreign exchange reserve is sufficient to meet the import demand for 18 months and secondly the government has transferred Rs. 274 crore directly to the citizens to help pandemic-affected people.
Beyond a doubt maintaining cash flow in the market is certainly the best way to keep the economy in good health even during such a crisis. Noble Laureate Abhijit Binayak Banerjee has strongly advocated that to keep the economy alive and kicking enough currency should be in circulation. He even went to the extent of advising the government to print notes to meet the shortfall without being bothered about inflation. It is heartening to note that both the Centre and the state governments have taken steps to ensure adequate cash flow in the market by announcing various infrastructure projects as well as continuing with direct benefit transfer transactions. For example, even in the vote on account placed in the West Bengal Assembly, the state government has sanctioned funds for the construction of 22 bridges, projects which will have far-reaching consequences in strengthening the economy. However, it may appear to some as an attempt to lure the electorate before the election.
Clearly, such steps are different from providing personal benefits to the people. In case of personal benefits, it is up to the beneficiary whether or not to spend the amount and bring it back into circulation. This is exactly what happened during the initial phase of the Covid-19 induced lockdown. People were hesitant to spend the money received from the government in apprehension of more hard days in the future. Everyone, including those belonging to the upper strata of society exhibited the same tendency by refusing to make any new investments even after getting tax benefits. People only started spending during the festive season and that immensely helped GDP to register positive growth after two quarters. It may be noted here that during the first quarter of 2020-21 fiscal, Indian economy contracted by nearly 25 per cent.
Thus, spending on infrastructure is the best way to ensure cash flow in the market as it will benefit all sections of society. Moreover, as vaccines have been developed, it appears likely that no desperate attempt will be made by the people to keep cash in hand. This is why the hope expressed by the RBI Governor is not unfounded. In other words, the second wave of Covid-19 virus will not be as severe as the first wave on the Indian economy. The resilience power of our economy will be able to absorb the shock.