Recovery not yet at stage for pulling back liquidity: FM Sitharaman

Finance Minister Nirmala Sitharaman on Thursday said the Indian economy had not reached the stage where the Reserve Bank of India (RBI) could begin pulling back liquidity, and gave a thumbs up to the central bank’s view on the matter.

The RBI has kept the repo rate unchanged at 4 per cent for more than a year while maintaining an accommodative stance “as long as necessary" to mitigate the impact of the Covid-19 pandemic.

“I am glad that the RBI has not given any indication of reducing the liquidity which the economy needs to sustain high levels of growth. The Indian economy has not reached the stage where the RBI can begin sunsetting the excess liquidity,” Sitharaman said while addressing the CII Annual Meeting 2021. “The central bank understands that quicker retrieval of the liquidity may not do the necessary stimulus which is required.”  

The finance minister exhorted India Inc to bring in fresh capital to help the government in reviving the economy.

“It is time Indian industry comes out in a very big way because today is the time to show the risk-taking abilities and take decisions to expand. I invite you all to take the bull by the horns and help the government. The stock market is showing you the way. Please follow it,” she said.

India’s benchmark indices have more than doubled from their Covid-19 lows in March 2020.

The minister said Indians were no longer looking at just bank savings, but were quite open to going into the stock market and invest in well-managed and transparent companies. Citing investment trends, she said about 300,000 demat accounts were opening in a month since the outbreak of the pandemic, as against 100,000 earlier.

She also lauded the RBI for its support to the economy and described the central bank’s relationship with the government as that of a partner. The monetary policy committee has been keeping the momentum in the right direction, the fiscal side is being taken care of by the finance ministry, she said. “Growth will be pushed both by the ministry and the central bank.”

Sitharaman said the growth versus inflation debate was not a “this or that” debate. “We will take all necessary steps to attend inflation and keep it contained,” she added.

On completing 75 years of Independence next year, the minister said she would like to see India move ahead in the direction of atmanibharta (self-sufficiency) in a few sectors such as energy.

She called upon private players to build capacity to help the country become atmanirbhar in renewable energy to reduce its dependence on fossil fuels. “We need to build capacity in solar panels and other renewable energy products. We must bring chip-making producers into India and build capacity in hydrogen. We are paying through our nose for fossil fuel, which is affecting our economy and environment,"

Sitharaman also said the pandemic was not financed by taxation of businesses. “Covid has not been financed by taxation. No individual or industry has been asked for a single extra paisa for us to manage the pandemic,” she said.  

On the taxation front, she said GST compensation to states would be paid in time this year (FY22) so that they could undertake developmental activities. Buoyancy in revenues was improving, giving a clean trajectory to show how we would bring the fiscal deficit down, she said.

She said the government was committed to the revival of the economy and would undertake all steps required to boost growth. She said indicators such as forex reserves of $620 billion were a good sign for the economy.

On disinvestment, she said the push for Air India, BPCL and CONCOR sales would happen this year. Necessary rigorous work was going on to divest these, she said.