Related Topics: Monetary Policy Committee, Repo Rate, Reverse Repo Rate
- The six-member RBI Monetary Policy Committee has decided to cut interest rates by 25 basis points (bps) to 5.1%.
- This is the fifth consecutive rate cut by the apex bank in 2019, aggregating to 135 bps.
Highlights of RBI Monetary Policy Statement
- RBI has lowered its Repo rate—the rate at which banks borrow from it—by 25 basis points to 5.15%.
- Consequently, the Reverse Repo rate under the LAF was reduced to 4.90 per cent, and the Marginal Standing Facility (MSF) rate and the Bank Rate to 5.40 per cent.
- The central bank will continue with an accommodative stance as long as it is necessary to revive growth, while ensuring that inflation remains within the target.
- RBI has revised real GDP growth for 2019-20 from 6.9% to 6.1%, with the committee noting that the negative output gap has widened further.
- Growth forecast for the first quarter of the next financial year was also trimmed to 7.2% from 7.4%.
- Inflation forecast for the second half of FY20 has been retained at 3.5-3.7%.
- These decisions are in consonance with the objective of achieving the medium-term target for Consumer Price Index (CPI) inflation of 4 per cent within a band of /- 2 per cent, while supporting growth.
- In order to allow a wider range of recipients to be covered by this mode of financial inclusion, RBI has raised the lending cap for microfinance institutions to ₹1.25 lakh from ₹1 lakh.
Why RBI is cutting Repo Rate?
- The rate cut comes after GDP growth for the first quarter of the current financial year plunged to a 25-quarter low of 5%.
- While cutting the GDP growth projection, the RBI reasoned that domestic demand conditions remained weak and export prospects were being impacted by slowing global growth and continuing trade tensions.
- The move is aimed at kick starting the investment cycle, stimulate demand and increase liquidity in the economy.
- A rate cut usually helps companies or stocks that are highly leveraged as well as banks and NBFCs.
- It will help companies with lower interest payments and lower EMI for borrowers, if the banks pass on the benefit to customers.
- With banks linking floating loans for retail and micro and small enterprise segments to the repo rate with effect from October 1, 2019, lending rates for new borrowers in these two segments are expected to come down further.
- A rate cut would bring down the cost of funds, help in recovering credit growth, and also help improve the quality of assets, leading to a decline in NPAs.
- It would help revive growth and bring financial stability among the banks.
- Any rate cut by RBI along with other measures to transfer the benefit to end-users will help the liquidity issues of interest rate-sensitive sectors like automobiles, real estate, and consumer durables and will help to revive the declining demand.
- While a reduction in lending rates in the economy will clearly benefit loan takers, it hits those living off income from fixed deposits when the rates on these go down.
Will lower rates spur economic growth?
- Capital is one of the three main factors of production, which are critical to the growth of a commercial entity, the other two being land and labour.
- Here, Capital is only a necessary, not a sufficient condition.
- Land, unless allocated by the local government, is too costly for investors seeking to set up shop.
- On labour, even if adequate hands are available for a job, the skill quotient is still low.
- Training graduates to be job-ready is a form of tax that companies pay.
- Market environment and demand is also to be taken into account, for growth of economy in a country.
- If end users are seeing lesser money in hand than earlier, demand will certainly be impacted.
- Therefore, in an environment where the other factors of production are not favourable for an investor, low interest rates by themselves may not prove attractive enough.
- Any revival of economic activity will be contingent on joint efforts by the government on the fiscal front to stimulate demand, and the RBI, to keep interest rates low.
[Source: The Hindu, Livemint]
Related Topics: Infrastructure Development, Government Policies & Guidelines
- Union Ministry of Power has revised the guidelines for setting up charging stations in the country, to increase availability of charging-related infrastructure in the next decade.
- These Revised Guidelines and Specifications for charging infrastructure shall supersede the earlier guidelines and standards issued by the Ministry of Power on 14.12.2018.
What are the Revised Guidelines?
- There must be at least one charging station in a grid of 3 x 3 km in all megacities and one charging station every 25 km on both sides of highways.
- The first phase of the plan (1-3 years) will cover all megacities with a population of more than four million as per the 2011 Census, and all expressways and highways connected to these megacities.
- The second phase (3-5 years) will cover other big cities such as State capitals.
- The government will install separate charging stations for heavy electric vehicles like buses or trucks after every 100 kilometres on both sides of highways.
- Assuming that most of the charging of EVs would take place at homes or offices where the decision of using fast or slow chargers would rest with consumers, private charging at residences/offices shall be
- Setting up of Public Charging Stations (PCS) shall be a de-licensed activity and any individual/entity is free to set up public charging stations, which has been reiterated in the guidelines, subject to the conditions as specified in the Guidelines.
- Bureau of Energy Efficiency (BEE) has been nominated as the Central Nodal Agency to facilitate installation of Charging Infrastructure.
[Source: The Hindu, Livemint]
Related Topics: Social Security Schemes, Government Policies & Initiatives
- Andhra Pradesh Chief Minister has launched the ‘YSR Vahana Mitra’ scheme, aimed at benefiting auto rickshaw and taxi drivers across the State.
- The scheme is the fulfilment of an election promise made by Reddy during his 3,648 km padayatra.
About the Scheme
- The scheme provides an annual cash incentive of Rs 10,000 to drivers of autos, taxis and maxi-cabs, who also own their vehicles.
- The annual allowance would be given to them to meet the insurance premium, license fee and other recurring expenses.
- Out of 1,75,352 applications received for the Vahana Mitra scheme, 1,73,102 drivers had qualified as beneficiaries.
- The beneficiaries will get ₹10,000 each per year for five years and the amount will be credited into the bank accounts directly while the processing will be done in a transparent manner.
FACTS OF THE DAY
INDIA’S FIRST E-WASTE CLINIC
Bhopal Municipal Corporation (BMC) and Central Pollution Control Board (CPCB) have joined hands to set up the country’s first e-waste clinic in Bhopal. The clinic would enable segregation, processing and disposal of waste from both household and commercial units. Electronic waste will be collected door-to-door or could be deposited directly at the clinic in exchange for a fee. The CPCB will provide technical support at the unit. The clinic is being conceived in compliance with the Solid Waste Management Rules, 2016. The e-waste clinic, a three-month pilot project, would be replicated elsewhere in the country, if successful.
YOUTH CO: LAB
In a latest initiative to recognize young people as critical drivers of sustainable development, Atal Innovation Mission (AIM), NITI Aayog and United Nations Development Programme (UNDP) India have launched Youth Co:Lab which aims at accelerating social entrepreneurship and innovation in young India. Co-created in 2017 by UNDP and the Citi Foundation, and operational in 25 countries across the Asia Pacific region, the Youth Co:Lab initiative aims to create an enabling ecosystem to promote youth leadership, innovation, and social entrepreneurship. Through Youth Co:Lab, young entrepreneurs and innovators will get a chance to connect with governments, mentors, incubators and investors, who will help equip them with entrepreneurial skills. The initiative will also convene a series of youth dialogues across several cities such as New Delhi, Hyderabad, Bangalore and Mumbai to promote entrepreneurship across India. The first phase of Youth Co:Lab will focus on six SDGs: SDG 5 (Gender Equality), SDG 6 (Clean Water and Sanitation), SDG 7 (Affordable and Clean Energy), SDG 8 (Decent Work and Economic Growth), SDG 12 (Sustainable Consumption and Production) and SDG 13 (Climate Action).
CHANGEMAKER AWARD FOR KUDUMBASHREE
The Kudumbashree Poverty Eradication Mission was presented with the Save the Children’s Changemaker award for its work among children in the State. Kudumbashree has been undertaking a number of activities for children through its Balasabha children’s collectives. The Balasabhas were launched in 2005 to bring to a halt generational poverty, enhance personality development of children, inculcate leadership qualities and cooperation among them, make them aware of democratic values and environmental issues, and foster their interest in science. At present, 4.3 lakh children are members of the 32,878 Balasabhas in Kerala. It was after the floods last year that Save the Children began associating with the Kudumbashree. . In the worst-affected districts of Pathanamthitta, Alappuzha, and Wayanad, disaster management activities were taken up in three phases. In the third phase, activities such as ‘Building Resilience’ were taken up to equip children to resume their lives without losing confidence.