No more space for monetary steps, tough task ahead for RBI: SBI Report

The report said RBI will face a multiplicity of challenges and a potential inflation uptick that has all the prospects to turn ugly with a marauding global commodity cycle

As the economy battles yet again to come out of the Covid-induced slowdown, an SBI Ecowrap report has suggested that the space for monetary accommodation is over, and the Reserve Bank of India (RBI) will face multiple challenges in terms of boosting India's growth rate and stabilising the rupee.

The report noted that it is the fiscal policy of the government which will have to pitch in and lift the growth prospects.

"While we do not rule out disruption to Government finances in subsequent months as economic activity only picks up modestly, we believe the space for monetary accommodation is over and only a proactive fiscal policy can rekindle animal spirits and growth," it said.

Authored by State Bank of India's Group Chief Economic Advisor Soumya Kanti Ghosh, the report said that the central bank will face a multiplicity of challenges to reinvigorate growth and support a stable rupee and a potential inflation uptick that has all the prospects to turn ugly with a marauding global commodity cycle.

Notwithstanding the cautious approach adopted by Centre, which has said that it could be borrowing Rs 1.58 lakh crore to compensate states, the recent steps taken by Centre will have definitely some impact on its finances, it said.

The extension of the Pradhan Mantri Garib Kalyan Anna Yojana from July till the end of November 2021 is expected to cost Rs 91,000 crore, while vaccinating 75 per cent of 'above 18' adults is expected lead to an additional burden of Rs 13,851 crore.

However, this number could go up if India enters into vaccine purchase agreements with foreign companies, it said.

The Centre has again been cautious in budgeting its excise revenue at Rs 3.35 lakh crore, the SBI report said, adding that if it continues to levy the same taxes as of now based on the assumptions of petrol and diesel consumption, the excise revenue could increase by Rs 76,339 crore from the budgeted estimates.

"Thus overall, the Government's finances do not look overstretched as GST collections have continued to maintain pace because of persistent Government efforts in plugging the loopholes and government had already factored in some of the vaccination cost," it said.

The fiscal impact of all these measures is likely to be around Rs 28,512 crore, it added.