The Reserve Bank article authored by a team led by the central bank’s Deputy Governor Michael Debabrata Patra is realistic rather than optimistic, as there is indeed a gradual acceleration in the manufacturing activity while services are not getting contracted as earlier. The RBI had already assured the nation that the liquidity conditions were comfortable. Whereas the second wave of the Covid-19 pandemic ebbed gradually, the release of pent-up demand following the lifting of the nationwide lockdown has buoyed the aggregate demands and the near-normal monsoon has added momentum to the sowing activity in the fields. The financial conditions not surprisingly, therefore, stay good. The states have, in the meantime, not rushed through the unlocking action. As a result, the rate of fatality has gone down to what it was before the second wave hit. Energised by the people thus, electricity generation has bounced back to peak levels of April 2021; it could even get rejuvenated to the pre-pandemic level of July 2019. Both intrastate and interstate E-way bill collections, meanwhile, rose to their highest level in the last four months, registering a growth of 17.3% sequentially over June 2021 and normalised to February 2020 levels. This is better than even the pre-pandemic scenario. Then, the toll collections climbed up in July, nearing the March 2021 record when Fastag was made mandatory. Also in July 2021, petrol consumption reached pre-pandemic levels and aviation turbine fuel consumption improved successively while diesel consumption slipped just marginally, suggesting that industrial activity is still not as vibrant as other human activities in the back-to-normal transition phase. Nothing in these observations pertaining to the state of the economy by the deputy governor of the RBI warrants the bank’s cautious act of distancing itself from the article.
Contrary to the opposition’s hackneyed complaint about price rise, the headline CPI inflation for July 2021 was 5.6%, down 70 bps from 6.3% a month ago. That “the worst would be behind us” is the right reading of the situation. If not for the two waves of the China-origin virus, the plateauing inflation in June would have held the economy in better stead. Inflation has no reason to swing erratically in the foreseeable future. It may, in fact, stabilise during the rest of the year. The scene on the food front is mixed, with high-frequency price data from the Department of Consumer Affairs indicating an uptick in cereal prices in August but prices of pulses continue to soften at the same time while edible oil prices are under pressure. When the prices of potatoes, onions and tomatoes increased, it was seasonal and expected.
As for money in the hands of the people, the recent enactment of amendments to the Deposit Insurance and Credit Guarantee Corporation has addressed depositor distress, with depositors in banks facing stress now able to get back their deposits up to Rs 5 lakh within 90 days. This has boosted public confidence in the banking system with stronger consumer protection and overall financial stability. If the CBDC does not directly replace demand deposits held in banks and rather complements physical cash, it will vie with other online and offline payment methods, supporting a more resilient and diverse payment system and also doing away with the risks associated with private digital currencies. This is dependent on the RBI meticulously planning, designing and testing the CBDC, of course. In the post-demonetisation era, CBDCs are sure to form the basis of an efficient new digital payment system, enabling broad access and providing strong data governance and privacy standards, and safeguarding the payment system against illicit activities, as the article says. The Monetary Policy Committee voting unanimously to keep the policy interest rate unchanged and by a 5/1 majority to maintain the accommodative stance it articulated in its previous meeting was expected in the given conditions of the economy.