‘Shambolic’ Delays Risk Worsening India’s Recovery Pain


The Reserve Bank of India’s decision to defer this week’s interest-rate meeting has underscored the government’s failure to act in time -- be it appointing members to the Monetary Policy Committee or boosting stimulus -- to support an economy facing its worst contraction in history.

While the central bank didn’t cite any reason for rescheduling its three-day meeting that was due to begin Tuesday, rules require at least four members of the MPC to be present. The six-member panel’s strength currently stands at three, after the term of as many external members ended last month.

The government had a headstart to name new external policy makers in time for the latest meeting, but failed to make use of it. The MPC meeting’s delay comes at a time when the central bank has been doing most of the heavy lifting on stimulus measures, with little backup from Prime Minister Narendra Modi’s government.

“This is shambolic,” said A. Prasanna, chief economist at ICICI Securities Primary Dealership Ltd. in Mumbai. “The government and RBI had at least three months time to appoint members and yet they have failed. Monetary policy was the only lever providing support to the economy and such uncertainty doesn’t help.”

The delay is not just limited to the MPC appointments: the government hasn’t shown any hurry in extending fiscal support either. Finance Minister Nirmala Sitharaman in May unveiled a 21 trillion-rupee ($285 billion) economic package, equivalent to 10% of gross domestic product, but the actual fiscal cost worked out to just about 1% of GDP. That prompted many, including Governor Shaktikanta Das, to call for more stimulus, yet little has been forthcoming to date.

“Announcements have been paused, action toward implementation continues,” Anurag Thakur, the junior finance minister, said in an email response to questions in June. “We will definitely consider further assistance packages as and when the need arises.”

The economy has since posted a record 23.9% contraction in the June quarter, the most among all major economies tracked by Bloomberg. Goldman Sachs Group Inc. sees India’s GDP shrinking 13.7% in the current quarter, delaying a recovery.

The Modi administration is due to announce its financial year second-half borrowing this month, when it is expected to further increase an already record 12 trillion rupee debt program. And such delays can add to the concerns of investors.

Lengthy Process

In India, appointments to key positions by the government -- from heads of state-run banks to deputy governors at the RBI -- can be a lengthy process fraught with delays.

The central bank had earlier this year written to the government to extend the tenor of the three external members of the MPC to maintain continuity in policy during the pandemic months. Still, the government went ahead and formed a panel to pick new members to replace Chetan Ghate, Ravindra Dholakia and Pami Dua, who had their last MPC meeting in August.

This edition of the MPC meeting was scheduled to begin on Tuesday, with the rate decision expected to be announced on Thursday.

“One hopes that the government recognizes the urgency of the matter,” said Rudra Sensarma, professor of economics at the Indian Institute of Management in Kozhikode. It’s “surprising that the government has not decided on the new appointees which is of utmost importance to preserve the credibility of the RBI’s decision making,” he said.

©2020 Bloomberg L.P.

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