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Government May Give Import Subsidy, RBI To Inject More Cash To Fight Coronavirus Impact

As the clamour for coordinated policy action by central banks to fight coronavirus grows, the Reserve Bank of India too is expected to inject more cash to calm financial markets either through a conventional rate cut or certain unconventional measures ahead of its monetary policy decision on April 3.

Alongside, the Centre could also announce fiscal measures to deal with the crisis as monetary policy tools may not be enough to fix the broken supply chains. Sources said the finance ministry may be planning to give import subsidy to manufacturers in pharmaceutical, electronics and certain other critical sectors to help them source raw materials from other countries at lower rates.

RBI Governor Shaktikanta Das on Tuesday hinted that there was room for more rate cuts to deal with the impact of the deadly virus on the economy but sources in the government told DH that much will depend on the emerging situation in the coming days and weeks.

They said the Central government would also like to wait for the latest retail inflation numbers before deciding on a pre-policy rate cut but it can always use o-policy tools to inject cash into the system as it had done in the last month’s monetary policy.

India’s retail inflation, which the RBI tracks for formulating its monetary policy, has topped 7.5% in January, surpassing the central banks medium-term target.

“The RBI and the government are in constant touch. They are monitoring the situation and both, fiscal and monetary tools are ready be used should the situation arise,” an oicial said on concerns of coronavirus impacting the economy through trade and finance channels.

“Extraordinary circumstances will be responded by extraordinary measures,” the oicial said, adding the RBI can immediately inject more cash into the system by conducting one more LongTerm Repo Operation (LTRO) at a lower interest rate, an o-policy measure that it announced in policy review last month. Similarly, the government is also discussing import duty cuts that can be announced if the export ban does not suffice.

The additional LTRO could be to the tune of Rs 1 lakh crore in the coming days, according to the sources, who said that would be enough to calm the markets in the medium term and give a much needed boost to business activities.

The government had on Tuesday banned the export of 26 pharma ingredients to check the scarcity of raw materials to drug manufacturers.-Deccan Herald

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