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State of the Economy 19

Monetary and Financial Support
1.24 Monetary policy since the outbreak of the pandemic was calibrated to provide a cushion
and support growth, but carefully controlled in order to avoid the medium term dislocations of

excess liquidity. The Monetary Policy Committee (MPC) cut the policy repo rate by 115 basis
points (bps) during February to May 2020, on top of a reduction of 135 bps in the preceding
twelve months. Since then, the MPC has maintained status quo on the policy repo rate keeping
it unchanged at 4 per cent. The Marginal Standing Facility rate and the bank rate have also
remained unchanged at 4.25 per cent and so has the reverse repo rate at 3.35 per cent. RBI in
its latest MPC statement has further decided to continue with this accommodative stance as
long as necessary to revive growth on a durable basis. A number of additional steps were taken
throughout the period to ensure that there was adequate liquidity in the system to allow the
central and state governments to finance themselves at lower rates.

1.25 An important aspect of the safety-net was the use of Government guarantees to provide
access to financial support to the economy in general and MSMEs in particular (see Table 5).
Combined with a moratorium on insolvency proceedings, the Government was able to avoid
a payments logjam that could have caused a cascade of defaults. Much of the support was
extended into 2021-22 where needed, but RBI and the Government have allowed some of

liquidity support to roll-off and the insolvency process to resume as the economy has recovered.
It is important to do this as excess liquidity and a stalled insolvency process bring longer-term
risks. This is discussed in detail in Chapter 4.

High Frequency Indicators

1.26 As mentioned above, in the last two years, Government leveraged an array of eighty
HFIs representing industry, services, global trends, macro-stability indicators and several other
activities, from both public and private sources to gauge the underlying state of the economy on
a real-time basis. These include electricity generation, scheduled domestic flights, volume/value
of financial transactions, capital flows, mobility indices, and so on. It also covers employment
demanded under MGNREGA to gauge rural employment conditions, especially in the context
of migrant workers. These indicators are regularly published in the Monthly Economic Report
of Ministry of Finance and a full list is given in the Annex at the end of this chapter.

1.27 While HFIs have the advantage of being real-time and frequent, they need to be used with
care. Each indicator provides, at best, a partial view of developments. Moreover, the noise-to-
signal ratio can be higher than for national accounts and other slower moving data. In a rapidly
evolving situation, policy-makers can pick up useful signals that allow for faster response and
better targeting. Thus, using HFIs for gauging trends in the economy is as much an art as a
science. The following charts provide a flavour of the HFIs being used (Figure 25). The specific
interpretations and policy response are discussed in the relevant chapters.