Govt, RBI to take necessary steps, says Sitharaman on coronavirus impact

The government and the Reserve Bank of India were closely monitoring the impact of coronavirus on the Indian economy and stock markets and will take all steps necessary, Finance Minister Nirmala Sitharaman said on Friday.

Chief Economic Advisor Krishnamurthy Subramanian said that following actions by various central banks, and given the inflation situation, there was a case for an interest rate cut. This comes ahead of the RBI’s next Monetary Policy Committee meeting, scheduled on April 1.

“Global markets have undergone severe volatility, and we are monitoring the situation. It is no consolation to say that stock markets in India and elsewhere have suffered. Globally there are serious repercussions being felt. We are conscious of the developments. Together with the RBI, we are monitoring and making sure where necessary, we take steps,” Sitharaman said at a post-Cabinet press conference.

“The interactions and engagement with the various sectors, through the concerned departments, is happening almost on a daily basis. We are trying to attend to the requirements of the affected industries, and to see where all the departments will have to make an intervention related to their sectors,” she said.

When asked if there was case for an interest rate cut by the MPC, the Finance Minister said: “The RBI Governor has said that he very clearly recognized that there is this development globally, and that he is open to need of the hour. I am sure he will take a call from his end.”

After being battered in the early session, the BSE Sensex rose 1,325.34 points and the NSE Nifty rose 365.05 points to settle the day at 9,955.20. The Indian markets saw their biggest intra-day selloff in early session, wiping nearly Rs 12 trillion off investor wealth in less than 20 minutes of opening trade. Both Sensex and Nifty plunged over 10 per cent in the opening session, hitting their lower circuit levels, the first time in 12 years.

Speaking to reporters earlier in the day, Subramanian was also asked on the possibility of a rate cut. “This is something that is being thought through. Other central banks have certainly responded and inflation data clearly suggests moderation,” he said.

"Also we expect core inflation to go down further because of decline in oil prices. So I think there is scope for the central bank to consider these different aspects." He said services sectors like tourism, hotels, restaurants and movies would be impacted due to the lockdown on account of coronavirus and the government will continue monitoring these sectors.

"Government is watching and tracking the data very carefully. Government and RBI will take all steps necessary," Subramanian said.

Official data released on Thursday showed that Consumer Price Index-based inflation (CPI) for the month of February eased to 6.58, from a 68-month high of 7.59 per cent in January, primarily on the back of lower prices of fruits and vegetables, official data showed on Thursday. The latest numbers have increase clamour for a rate cut by the MPC, which the Narendra Modi government hopes will inject some confidence to boost growth.

Subramanian said the fall in Indian stock indices is lower than the decline witnessed globally and the situation in India will stabilise over the next few weeks as focus shifts to economic fundamentals like declining inflation, growing industrial production and adequate forex reserves.

"So what we are seeing currently is a reflection of some of the global factors related to coronavirus episode... Stock markets often react with greed and fear. Currently, there is fear because of coronavirus. It (the decline in stock market) is because of global factors and fear sentiment which I expect to come down un the next few weeks as we get a handle," he said.

The global Covid 19 pandemic has led to over 5,000 deaths globally, leaving over 130,000 people infected. In India, there are 82 cases of coronavirus and one case of death so far.