Painting a rosy picture of the economy, the finance ministry's monthly report on Tuesday said growth and inflation outlook for 2021-22 portends more than full recovery, and that the country has become the COVID-19 vaccine hub of the world.

"The structural reforms and the policy push under the Aatmanirbhar Bharat Mission along with the slew of measures announced in the Union Budget 2021-22 towards achieving broad-based inclusive growth will strengthen the fundamentals of the economy and bring it back on to a strong and sustainable growth path in the year ahead," the ministry's Monthly Economic Report said.

Growth and inflation outlook in 2021-22, "portends more than full recovery", it added. Indian economy is estimated to contract 7.7 percent in the current financial year, mainly due to the coronavirus pandemic.

The latest Economic Survey projected growth rate to rebound to 11 percent during 2012-22 while the Budget estimated real GDP to be between 10-10.5 percent. "FY 2021-22 will be the year to rebuild with the IMF projecting growth of output at 11.5 percent, Economic Survey at 11 percent and the RBI's Monetary Policy Committee at 10.5 percent.

"With the IMF keeping India's growth projections elevated at 6.8 percent in FY 2022-23, India is back as the fastest growing major economy in the world," it said. The Survey pitched for growth through counter cyclical fiscal policy emphasising that growth alone is the answer to sustaining the public debt burden of the country, the report said.

The Survey was presented in Parliament on January 29 and the Budget on February 1. The Budget implemented the counter cyclical fiscal policy by raising the target of fiscal deficit to 6.8 percent of GDP, more than double the FRBM (Fiscal Responsibility and Budget Management) target, the report said.

With the expanded borrowing programme mostly meant for funding the enhanced capital outlay, the Budget has set in place the multiplier impact on growth to support the prescribed fiscal deficit target of 4.5 percent of GDP in 2026 under the fiscal glide path. The report noted that various measures taken by the government since March 2020 against the pandemic ensured minimum loss of life.

"Early lockdown, health-infra ramp up, gradual unlocking, blanket testing, social distancing, calibrated fiscal stimulus to minimise supply side disruptions and revive demand and structural reforms pursued diligently by government since March, 2020 have now come to fruition to limit the fatality rate to globally one of the lowest at 1.2 percent," it said.According to the report, with each day ending with positive COVID-19 cases falling to new lows and economic activity levels attaining new peaks, India has worked its way around the pandemic through the will of the brave people and astute policy interventions by the government.

"The fact that complacency is far from settling in is demonstrated by India administering close to four million doses of COVID-19 vaccine within a span of two weeks since 16th January, 2021 to become the fifth largest inoculated country in the world. "India has not only become the vaccine hub of the world but has also extended assistance to more than 90 nations requesting doses for stocking up," it noted

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Emkay Wealth Management's head of research  Joseph Thomas says the Reserve Bank of India's plan to hike the cash reserve ratio (CRR) will have an impact on the cost of borrowing for corporates as well as other borrowers.

In its final bi-monthly monetary policy review, the Reserve Bank of India left repo rates unchanged at 4 percent and kept the stance “accommodative” on February 5. The reverse repo rate was also kept steady at 3.35 percent and so were marginal standing facility and bank rate at 4.25 percent.

The central bank, however, announced a two-phase plan to restore CRR to 4 percent, a move expected to have an impact on the cost of credit.

"The extended marginal standing facility (MSF) relaxation is good for liquidity and nothing prevents the RBI from injecting liquidity into the system whenever it is required, in its assessment. So, that remains at the core of the accommodative policy," Thomas says in an interview to Moneycontrol's Sunil Shankar Matkar. Edited Excerpts:

Q: What is your reading of RBI policy, especially after Budget 2021? What does the accommodative stance indicate now?

The monetary policy complements the Budget in many ways, in terms of its tone, intent, and the underlying message and actions. The base rate, that is the repo rate, is kept unchanged, and the framework for the provision of liquidity remains the same. In short, the policy remains accommodative. RBI is generally expected to follow the accommodative stance of the policy till sustainable economic growth emerges. The only factor that can bring about changes in this policy is a sustained rise in the price level, the probability of which is very small at this juncture.

Q: The RBI expects FY22 GDP growth at 10.5 percent. It has a strong conviction that in FY22, India will undo the damage of COVID. Do you feel the growth expectations can be achieved or surpass in FY22?

The estimates of GDP growth for FY22, from all major agencies, both domestic and international, have been in the range of 10 to 11 percent. While this growth may not be surpassed, it is almost certain that it may not be substantially lower than that too, given the pick-up in general economic activity, and the rebound in manufacturing and industrial activity.

There are possible disruptors like a second or third wave of the pandemic engulfing our country as also other major countries, escalation of the border issues with China, a steep rise in interest rates, etc. But conviction abounds, in our ability to have better control of things, and thereby, grow much faster.

Q: The RBI has revised its CPI inflation projection to 5-5.2 percent for the first half of FY22 against 4.6-5.2 percent earlier, while the CPI inflation projection has been revised downwards to 5.2 percent for Q4FY21 from 5.8 percent earlier. What is your view? 

The RBI projection of inflation is based on RBI's assessment of the economic conditions, and they also hold surveys on various aspects of the economy, including expected inflation. In the latest survey, the responses summed up to expectations of slightly moderate inflation in the immediate term and more or less the same level of inflation over the next one year or so. RBI estimates are based majorly on this.

On food inflation, we may see lower prices in the coming months due to a better supply of fruits and vegetables after a good winter crop and a better kharif harvesting season but the prices of pulses may remain high. In the non-food category, one thing that may potentially cause some trouble is fuel prices. Brent is already close to $60 a barrel. This may not be good for the general price level as fuel prices have a cascading effect on all major items of consumption. Therefore, the inflation projections, overall, look quite conservative but close to realistic.

Q: The RBI said CRR normalisation opened up space for more options to inject liquidity and announced a two-phase normalisation for CRR. It will gradually restore the CRR to 3.5 percent in March and 4 percent in May. It extended MSF relaxation for another six months. What is your view?

There are shades of rationalising the liquidity management in the RBI policy. The CRR will be hiked by 1 percent-from 3 percent to 4 percent, to the pre-pandemic level-in two phases. This is happening between March and May, so not very far this day. We should note that any CRR measure will have an impact on the credit multiplier. This is a measure which will have an impact on the cost of credit. Lending by banks and also their borrowings will become more expensive over a period of time. It also has implications for the quantum of liquidity because to the extent of the hike in CRR, an equivalent amount of money, by way of a certain percentage of the net time and demand liabilities of the banks, will go into the RBI as part of CRR with the central bank. To that extent, liquidity will get curtailed.

To state this more directly, this measure will have an impact on the cost of borrowing for the corporates as well as other borrowers. The extended marginal standing facility relaxation is good for liquidity, and nothing prevents the RBI from injecting liquidity into the system whenever it is required, in its assessment. So, that remains at the core of the accommodative policy.

Q: The RBI decided to include NBFCs in TLTRO on-tap scheme and will provide funds from banks to NBFCs under on-tap TLTRO. It will incentivise new MSME loans by banks. Will it help NBFCs?

The very objective of Targeted Long Term Repo Operations (TLTRO) is targeted funds, or credit delivery, by banks, making investments into different types of borrowing instruments of specific sectors, which require liquidity support. NBFCs are an integral part of the larger banking and financial services domain and they satisfy a need that is important to our economic growth. The RBI statement is very clear on this, "Given that NBFCs are well recognised conduits for reaching out last-mile credit and act as a force multiplier in expanding credit to various sectors, it is now proposed to provide funds from banks under the TLTRO on Tap scheme to NBFCs for incremental lending to these sectors."

Coming to the MSME financing, the RBI has given the benefit to banks by way of a deduction of the amount advanced from the NTDL for the purpose of CRR maintenance and this would help the banks to offer more credit at a better rate to MSMEs but the success of this programme will depend on the initiative and action of the banks.

Q: Retail investors can now access primary and secondary government bond market. Retail investors can open gilt accounts with the RBI. Is it a surprise? How should retail investors go about with gilt funds?

The objective of the RBI in this is to provide direct access to retail investors. It is not that access has not been there so far. They could access the market through their advisers or brokers and get the government securities purchased and credited to their sub-SGL accounts or demats.

What comes with the new thing is direct access with and through the RBI. This may encourage many investors to open accounts with RBI and start investing. Another useful feature of this action is that it is a reform to the existing system. Under the current set-up, the retail investors accessing markets through brokers or their banks, as the case may be, used to get a retail price for a small lot or an odd lot, which is often much higher than a wholesale price, or a large lot or market lot price. This differentiated pricing for small and odd lots will be eliminated almost completely, which will bring in more efficiency in the market access for small investors.Gilt funds are a good avenue and mode for investing into gilts and they work on NAV, which is common for all investors as of a specific investment date. Gilts funds pickup larger market lots and therefore, they do not have the disadvantage of differentiated pricing. The RBI action is a step in the right direction. But considering the large number of accounts that they may have to open for retail investors, and which need to be maintained and serviced, it would be better if the long-awaited transformation of the debt management function of the RBI into a separate office of debt management of the GOI is realised sooner than later.

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Describing the 2021-22 Budget a "booster rocket" for the economy, BJP leader Jayant Sinha on Friday said it will place India on the path of non-inflationary growth and make this decade "Roaring 20s" for the country.

This Budget has focused on supply-side investment and this is going to ensure that the country has a non-inflationary growth for very long period of time, Sinha, who chairs the Parliamentary Standing Committee on Finance, said.

"This budget is a booster rocket for the economy. The country is proceeding on a V-shaped recovery path and will immensely benefit from this booster rocket. It will firmly place the country on a non-inflationary growth trajectory, which is going to sustain for a very long period of time," he told PTI.

The impact of this Budget will be that the country will not only see a very strong recovery this fiscal, but also in the following years, India will continue to grow at 7 to 8 percent, said Sinha, who was the minister of state for finance in the first term of the Modi government.

"This budget and the reforms which were carried out by the Narendra Modi-led government in the last six years, will make this decade a decade of Roaring 20s for India," he said.

'Roaring 20s' refers to the decade of the 1920s, which followed after war devastation and the 1918 Spanish Flu. In that decade, the US and several European nations saw prosperity and economic boom.

Talking about fiscal deficit, which is pegged at 9.5 percent of the Gross Domestic Product (GDP), Sinha said fiscal deficit numbers this year includes the spending on the Food Corporation of India (FCI), and those were extra budgetary receipts.

The former Union minister said besides looking at fiscal deficit, it is also important to note where those extra resources were used.

Lot of those resources were used for providing relief to the poor and the marginalised during the coronavirus-induced lockdown. These resources were used to help people during the challenging time, he said.

Sinha also asserted that mega reforms were announced in the Budget, including setting up of an asset reconstruction company and an asset management company to clean up non-performing assets in the banking sector. Setting up of textile parks was also announced, he said.

On disinvestment of Air India, Sinha, who also held the civil aviation portfolio in the previous government, said the intent of the Centre is clear and it is to do a strategic sale of the national carrier.There were issues related to non-core assets, core assets and subsidiaries of the airline, now all those have been dealt with, he said underlining that the disinvestment of Air India is a complicated process.

Read Also:- Budget 2021 lays foundations of $5 trillion economy

He also said for disinvestment of the carrier, the government will also take note of market conditions and also of the aviation sector which has been deeply impacted by COVID-19 pandemic.

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Pinching the pockets of common man amid rising fuel prices, oil marketing companies raised the price of non-subsidised liquefied petroleum gas (LPG) by Rs 25 in metros on February 4.

After the current hike, the price of cooking gas in Delhi was seen at Rs 719 per cylinder (14.2 kg), in Kolkata at Rs 745.50, Mumbai at Rs 719 and Rs 735 in Chennai. The country's LPG penetration now stands at 99.5 per cent, reaching out to 28.9 crore consumers. Though there was no hike in prices in the month of January, prices went up by Rs 100 a cylinder in Delhi through two hikes in December.

Asserting that the government is committed to farmers' welfare amid the ongoing agitation, FM also introduced an agri infra and development cess of up to 100 percent to create post-harvest infrastructure for improving farmers' income.

Sitharaman also proposed higher allocation for Rural Infrastructure Development Fund and Micro Irrigation Fund and extended Agriculture Infrastructure Fund (AIF) to APMCs for augmenting infrastructure facilities.

Union Budget 2021 Highlights | All the action from FM Sitharaman’s budget– as it happened

The AIF was created in 2020, as part of a COVID-19 stimulus package, to provide subsidised financing to projects by primary agriculture cooperative societies, farmer producer organisations, agriculture entrepreneurs, and start-ups to develop cold chain storage and other post-harvest management infrastructure

Agitating farm unions have said that they are only concerned about getting the three farm laws repealed, and what has been offered to the agriculture sector in the Union budget did not matter.

"Our demand was to increase the price of crops, not agriculture credit. This is a conspiracy to take away your land. Within 10-15 years, the corporate will take your land. The fight is for the rate of crops, not for credit. They didn't talk about MSP. There is nothing for farmers," farmer leader Rakesh Tikait told PTI.

Echoing Tikait's view, Ranjeet Raju, state president, Gramin Kisan Majdoor Samiti, Sri Ganga Nagar said, "If the government wants to help, they should take steps to increase farmers' income, not by increasing agriculture credit target. This is like pushing farmers into the debt trap, which eventually leads to more farmer suicides. And micro-irrigation corpus, which I am told is doubled in this Budget, is something that goes to industries in the name of farmers".

"It can be seen as a sign of support to the APMC system. If they are making APMCs eligible to borrow from this fund, and thus strengthen their infrastructure, the government seems to be sending a message that they are not going to be killed,” said Siraj Hussain, former Agriculture Secretary and currently a fellow at the Indian Council for Research on International Economic Relations, as quoted by the Hindu.

He further said that the budget "seems like an interim budget for agriculture as there are no major announcements."

Similarly, Jai Kisan Andolan convenor Avik Saha said, “According to the Economic Survey data, nothing has yet been spent out of the Agriculture Infrastructure Fund of Rs 1 lakh crore or the Animal Husbandry Infrastructure Fund of Rs 15,000 crore, although they were supposed to have been part of the COVID-19 stimulus package.”“While big figures are announced in the name of the infrastructure funds, these are actually not budget allocations, but simply notional funds which are meant to finance projects through loans,” he added, as per the report.

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