I am delighted to participate in this symposium on Indian Economy organised by the Institute of Indian Economic Studies (IIES), Tokyo. I understand this event is being organised by the IIES after a gap of 3 years due to the intervening period of the COVID-19 pandemic. Earlier this year in March 2023, Prof. Sakakibara and Mr. Sugaya had visited the Reserve Bank of India in Mumbai when we discussed about my participation in this symposium. I would like to convey my sincere thanks and gratitude to Prof. Sakakibara and the IIES for inviting me to participate in this event today.
The global economy continues to face multiple macroeconomic and geopolitical shocks. The prediction of a global recession has not come true but there are indications that global growth is slowing down amid tightening financial conditions and still elevated inflation. Even as the fallouts of the pandemic, the war in Ukraine and the unprecedented tightening of monetary policy reverberate across the world, the recent developments in West Asia have added to the litany of challenges for the global economy. Policymaking in this scenario becomes extremely challenging with difficult trade-offs – growth versus inflation; price stability versus financial stability; and current exigency versus future sustainability. There is always a risk of doing too little or doing too much. In such a scenario, I would like to start with the Reserve Bank of India’s approach to policy making during this turbulent period.
To protect the economy from the relentless shocks in the recent period, our endeavour has been to remain proactive, pragmatic and prudent in our policy response. We were conscious of the fact that an overdose of monetary medicine, while relieving the pain in the short run, could give rise to increased vulnerability and fragility over a period of time. Following the onset of the COVID-19 pandemic, we injected liquidity, but almost every measure of liquidity injection was for a limited period and was targeted. By doing so, we avoided the pitfall of a liquidity trap. Further, our lending standards were not diluted in terms of our counterparties (banks) and collateral requirements for on-lending to stressed entities or sectors.
On the regulatory side also, our actions were measured. We allowed lenders to offer moratorium on loan repayments and interest payments. We put in place loan resolution frameworks for the COVID-19 related stressed assets thereafter. These loan resolution frameworks were not open ended but subject to achievement of certain financial and operational parameters. The idea was to avoid the phenomenon of ‘moral hazard’ and other pitfalls typically associated with open ended restructuring of loans.