A Reserve Bank of India Monetary Policy Committee member has said that it may take years for India’s Gross Domestic Product to regain the output it lost due to the coronavirus pandemic, Mint reported on Friday. India’s GDP contracted by a whopping 23.9% during the first quarter of 2020-’21 due to the lockdowns imposed to contain the spread of the coronavirus.

“If the projections hold, the level of GDP would have fallen approximately 6% below its pre-Covid level by the end of 2020-21 and it may take years to regain this lost output,” Michael Patra said. “There is also an anecdotal sense that the economy’s potential output has fallen, and the post-Covid growth trajectory will look very different from what has been recorded so far.” He said changes in social behaviour and norms of commercial engagements and at the workplace may accentuate this structural change.

Patra said at the meeting of the Monetary Policy Committee on October 9 that the coronavirus is reaching the interiors of India, and there is already fear of a second wave, like in European countries. “In the absence of intrinsic drivers, the recovery may last only until pent-up demand has been satiated and replenishment of inventories has been completed,” Patra said. “Empirical evidence suggests that consumption-led recoveries are shallow and short-lived.”

He said that while exports could be a driver for growth, this is doubtful due to the World Trade Organization’s projection of a decline in world trade volume by 9.2% in 2020. Structural reforms in India may not be very successful in an atmosphere of depressed growth, unemployment and uncertainty, Patra averred.

Patra said both monetary policy and fiscal policy in India are facing constraints. “For fiscal policy, it is the collapse of tax revenue – by 32% in the first quarter; consequently, the Centre’s revenue deficit during April-August is 121.9% of budget estimates,” he said. “For monetary policy, it is the persistence of headline inflation above 6% for the third month in succession.”

Jayanth R Varma, another Monetary Policy Committee member, said that excessively high long-term interest rates are inflicting damage on the economy. “A significant part of the easing of policy rates is not being transmitted to longer term rates that form the benchmark for corporate borrowing and investment decisions,” he said. “Excessive long term rates exacerbate the collapse of investments in the economy.”

Contrary to this, RBI Governor Shaktikanta Das had said on October 21 that the country is “at the doorstep of the revival process” from the coronavirus pandemic. He added that the government’s fiscal and RBI’s monetary policies were counter-cyclical and accommodative. The central bank chief also said the government would have to revisit its fiscal roadmap once the worst effects of the pandemic is tackled.

On October 9, the RBI kept the interest rates unchanged, with the repo rate at 4% and the reverse repo rate at 3.3%. It also predicted a decline of 9.5% in the Indian economy in 2020-’21.

The repo rate is the rate at which RBI lends to its clients generally against government securities. The reverse repo rate allows banks to deposit funds with the central bank and earn interest on it.

On October 13, the International Monetary Fund predicted that the Indian economy would contract by 10.3% in 2020-’21. The Washington-based lender, in its World Economic Outlook report, had said “revisions to the forecast are particularly large for India, where GDP contracted much more severely than expected in the second quarter”.