FM Nirmala Sitharaman chairs FSDC meeting, takes stock of economy amid COVID-19 crisis
New Delhi, May 28: Finance Minister Nirmala Sitharaman on Thursday reviewed the state of the economy at the meeting of the Financial Stability and Development Council (FSDC), in view of disruptions caused by the COVID-19 pandemic. This was the first meeting of the FSDC, the apex body of sectoral regulators headed by the finance minister, since the coronavirus outbreak.
The 22nd meeting of the council, held via video conferencing, assumes a greater significance considering that the economy is expected to contract by 5 per cent by some estimates amid the virus crisis. The FSDC, which also comprises RBI Governor and other financial sector regulators, underlined the need to continue with measures to address the liquidity and capital requirements of the financial sector.
Among the issues discussed were: the current global and domestic macro-economic situation; financial stability and vulnerabilities; challenges likely to be faced by banks and other financial institutions; regulatory and policy responses; solvency matters of financial firms, etc, according to a finance ministry statement. Besides, market volatility, domestic resource mobilisation and capital flows issues were also discussed by the council, it said.
The council noted that the COVID-19 pandemic crisis poses a serious threat to the stability of the global financial system as the ultimate impact of the crisis and the timing of recovery is uncertain at this point of time, it said.
"While, decisive monetary and fiscal policy actions aimed at containing the fallout from the pandemic have stabilised investor sentiment in the short-run, there is a need to keep a continuous vigil by the government and all regulators on the financial conditions that could expose financial vulnerabilities in the medium and long-term," the ministry said.
The statement further said that the efforts of the government and regulators are focused on avoiding a prolonged period of dislocation in financial markets. The RBI last week said the impact of COVID-19 is more severe than anticipated and the GDP growth during the current financial year is likely to remain in the negative territory. It projected some pick-up in growth impulses from the second half (October-March) of 2020-21 onwards. The council also reviewed the action taken by members on the decision taken by the FSDC earlier.
The council took note of the initiatives taken by the government and the regulators in the recent months to help revive the economy. The government and the RBI have announced various fiscal and monetary measures to pre-emptively limit the economic damage and would continue to address the liquidity and capital requirements of the financial institutions. Earlier this month, the government announced about Rs 21 lakh crore stimulus package to help the nation tide over the economic crisis induced by the coronavirus and the lockdown to curb its spread. The mega economic package includes the Reserve Bank's Rs 8.01 lakh crore worth of liquidity measures.
Sitharaman had announced this economic package in five tranches, which included a Rs 3.70 lakh crore support for MSMEs, Rs 75,000 crore for NBFCs and Rs 90,000 crore for power distribution companies. Besides, free foodgrains to migrant workers, increased allocation for Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), tax relief to certain sections and Rs 15,000 crore allocation to the healthcare sector to deal with the pandemic, were also announced as part of the economic package.
Besides the RBI governor, SEBI chief Ajay Tyagi, IRDAI chairman Subhash Chandra Khuntia, Insolvency and Bankruptcy Board of India (IBBI) chairman M S Sahoo and PFRDAI chairman Supratim Bandyopadhyay were present in the meeting. Economic Affairs Secretary Tarun Bajaj, Revenue Secretary Ajay Bhushan Pandey, Financial Services Secretary Debasish Panda and other top officials of the finance ministry also attended the meeting.