RBI's Monetary Policy Supports Export Oriented Growth

Reserve Bank of India Governor Shaktikanta Das' Monetary Policy Statement on maintaining the status quo in key rates to support exports and manufacturing comes opportunely as early trends of the country's exports in February indicate shipments grew by 28.51 per cent to USD 8.67 billion during 1-7 February 2022, boosted by a healthy growth in sectors such as petroleum, engineering and gems and jewellery.

According to Commerce Ministry data, USD 8.67 billion per week of exports is almost 20 per cent more than the weekly run rate of USD 7 billion clocked this year. India's exports have remained resilient amidst the challenges of COVID-19, lockdowns and shrinking of global demand, helping the economy to further move towards recovery with booster doses of policy and financial incentives

The February preliminary figures are in strong continuation of the January momentum which saw the country's exports rising by 23.69 per cent to USD 34.06 billion in January, putting India on a firm wicket to chase the USD 400 billion export target in FY 2021-22.

Further, the Central Bank's sale to increase the National Automated Clearing House (NACH) mandate limit to Rs 3 crore for TReDS related settlements would help the MSME sector which has been perennially facing liquidity issues.

On a cumulative basis, exports during April-January 2021-22 rose by 46.53 per cent to USD 335.44 billion as against USD 228.9 billion in the same period last year, endorsing the RBI prognosis that going forward the Government's thrust on exports -- besides capex -- augurs well for enhancing productive capacity, strengthening aggregate demand and crowding in private investment.

The RBI's continuation with an accommodative stance to support growth has not come as a surprise to stakeholders in the export business who feel that the RBI move backed by extension of the Emergency Credit Linked Guarantee Scheme (ECLGS) in Budget 2022-23 will augment further the flow of credit to the exports sector, agrees A Sakthivel, President of the Federation of Indian Export Organisations. A low-interest rate regime, according to Engineering Export Promotion Council India Chairman Mahesh Desai, would support economic recovery which has been sporadically facing headwinds in the form of new pandemic waves and resultant supply disruptions.

Indeed, amidst looming uncertainty on account of global and domestic factors with the underlying threat of the pandemic still not fully mitigated, there are concerns flagged by RBI which have a bearing on the services sector which would account for exports of USD 240 billion by the end of this fiscal. Some high-frequency indicators suggest a weakening of demand in January 2022 reflecting the drag on contact-intensive services from the fast spread of the Omicron variant in the country.

"The contact-based services have been most severely hit by the recurring waves of the pandemic making a move to sustained recovery extremely difficult for the sector," points out Sanjiv Mehta, President, FICCI, welcoming the extension of the on-tap liquidity window for emergency health care services and contact intensive services till 30 June 2022, from March 31, 2022, as announced earlier.

Moreover, there is a broad agreement that the impact of the ongoing third wave of the pandemic on the recovery is likely to be limited relative to the earlier waves, hence the services sector can find comfort in an improvement in the outlook for contact-intensive services. By also maintaining the reverse repo rate at the present level, the RBI, according to export bodies, has signalled that it is in no hurry to take back liquidity from the system which bodes well for exporters.