The Union government is working on a strategy to help sectors such as aviation, entertainment, hospitality and tourism that have been hit due to the coronavirus disease (Covid-19) pandemic, according to two officials aware of the plans that they said could involve policy as well as fiscal support.
The outbreak of the disease, which has raced around the world sickening close to 175,000 people and causing nearly 6,700 fatalities in less than three months, has virtually grounded global and domestic tourism to a halt and authorities across India are suspending crowd-pulling activities such as movie screenings, sports events and concerts to contain the pathogen’s spread.
“The centre is confident about the resilience of the economy and closely monitoring the situation together with the Reserve Bank of India (RBI) and state governments,” said one of these officials, asking not to be named. Both officials are part of separate ministries dealing with economic issues.
Appropriate decisions will be taken in appropriate time and after feedback, both officials said.
One of the interventions is expected to be by the central bank, which is likely to consider cutting the policy rate since retail inflation has softened, the second official said.
On Monday, the wholesale price index (WPI) based inflation was pegged at 2.26% for February but the retail inflation is still outside RBI’s comfort zone of 6% at 6.58%.
A rate cut has also been sought by industry representatives. “While the Reserve Bank of India has its scheduled monetary policy meeting coming up in April, it could deliver growth supportive measures even sooner,” said Chandrajit Banerjee, director general of the Confederation of Indian Industry (CII), which has sought a 50-basis point cut in interest rates to stimulate the economy.
The US Federal Reserve on Sunday cut its lending rates to zero. The Bank of New Zealand and Bank of Korea also followed the suit with 75bps and 50 bps reductions, respectively. One bps is equal to a hundredth of a percentage point.
The outbreak has also caused havoc in equities markets across the world, a trend that RBI governor Shaktikanta Das described as “intense volatility” on Monday. “More recently, advance economies have coordinated large policy rate reduction,” he said, while acknowledging a likely impact from the resulting global slowdown. RBI usually takes decisions on policy rates at its Monetary Policy Committee (MPC) meeting, which is expected early next month.
According to the officials cited above, the fall in markets is not yet worrying and the finance ministry sees it largely due to global sentiment. The Indian market plunged to a 30-month low with Sensex shedding 2,713 points or 7.96% on Monday – wiping off over ~7.50 lakh crore of investors’ wealth.
Commenting on the volatility, chief economic adviser (CEA) Krishnamurthy Subramanian on Friday said: “What we are seeing over the last few days is primarily a reflection of global factors. Stock markets at times react with both greed and fear. Currently, there is some fear due to coronavirus.”
Subramanian said headline inflation has come down due to softening vegetable prices and the downward trend is expected to continue, and the Index of Industrial Production (IIP) rose 2% in January compared with 0.1% growth a month ago – figures that he said were a positive sign.
The second official mentioned above said the outbreak is bound to hurt global economy and India cannot keep itself completely isolated.
The government is, however, alert and prepared to support any sector that would be hit by the pandemic, this person said.