Both FinMin and RBI are really listening to markets: Ashima Goyal

Are you surprised about the revision of the liquidity framework in the RBI credit policy? Also what about the incremental credit to certain sectors and sops given for CRR maintenance?
It is all as expected and the liquidity changes suggest that they are continuing to support liquidity and that is very important. We are seeing some impact in spreads decreasing through different sectors. That should help some of the improvements to pass through. Also we are seeing an upward revision in the inflation forecast as well as the growth forecast. So, there are some green shoots in growth. It is the time to watch that and continue to support it with surplus durable liquidity.

What is your view on the sops that have come in for the real estate as well as MSME sectors? There was a demand for a one-time restructuring facility for real estate loans. RBI has said there will be no downgrade of commercial realty loans if the delay is genuine. They have also given a one-time recast of MSMEs default loan till December 31st. How are you looking at these two sops? Would they help ease the pain in these sectors?
Yes, when I talk about liquidity, it is also important that it reaches the NBFCs and a lot of liquidity starved sectors. It is necessary to support their lending activities and they seem to be doing this slowly. In a sense, the budget has also had some measures and some of these steps continue those measures.

They are listening and responding, but it is a bit slower than what was necessary. Fast reaction would have helped but I would say half a loaf is better than no bread. One major step in the budget for example was that the measures extended to smaller NBFCs. Those are the ones that were left out of the current liquidity schemes so and these are the ones which reach a lot of small borrowers.

What have you made of the growth projections? There is this spectre of coronavirus. One does not know how long this is going to play out and what could be the repercussions. As of now, it is only China pulling up its socks because that is where the scare has erupted, but for FY21 the GDP growth target has been revised to 6%?
India because of its size is somewhat insulated. It is really the small open economies who would be impacted more. India is also dependent on a lot of imported parts from China. Those industries are going to be hit. But it is an opportunity for the domestic industry to pull up its socks and produce more.

They are always complaining about competition from China. Now they should show that they can produce it. Sometimes these shocks might deliver a fillip to industry. It is not clear that it would necessarily be negative in India at least.

The MPC statement also says that the committee has recognised that a policy space should be available for future action. This would give RBI some sort of a comfort level and while inflation is going to be high, there are growth impulses and that would mean some bit of RBI action in the policies to come in FY21?
If you think about flexible inflation targeting, there is a negative output gap and inflation is below the long-term expected value. Their projection is below 4% for H2. So, they have space and if growth does not revive sufficiently, going forward inflation comes down. They definitely have space.

They have space even today but they want to be sure because they see the inflation forecast is very uncertain in the current situation, they want to watch food inflation for a couple of quarters maybe but they have acknowledged that they have space and they have space even today if they want to use it.

What are you making of the revised liquidity management frameworks? Do you think that will be enough?
One very positive feature is that both the Ministry of Finance and the Reserve Bank are really listening to the markets. Earlier, that was not there and that led to a lot of liquidity squeeze and problems for the Indian economy. But now, they are responding to concerns.

It is not that they are giving into interest groups, but rather are recognising operational difficulties and places where matters can be improved. All these are responding to concerns expressed, learning from what operational people are telling them and as long as they continue doing that, there is positive correction and it will help the economy.

This is part of that and these are small steps. Even if the size of the step is small, they will take future steps if necessary.