RBI got off to a good start, Banks must now step up and do their part to assist the Covid-affected economy.

The Reserve Bank of India (RBI) has announced a new set of measures to address the economic disruption caused by the Covid-19 pandemic’s sharp resurgence. The rapid increase in infections has put a significant strain on the country’s medical infrastructure, prompting state governments to impose lockdowns and mobility restrictions.

While the impact on the Indian economy is likely to be less severe than last year, the disruption is likely to have a disproportionate impact on small businesses and retail borrowers. The Reserve Bank of India (RBI) has announced a new set of measures to address the economic disruption caused by the Covid-19 pandemic’s sharp resurgence. The rapid increase in infections has put a significant strain on the country’s medical infrastructure, prompting state governments to impose lockdowns and mobility restrictions.

While the impact on the Indian economy is likely to be less severe than last year, the disruption is likely to have a disproportionate impact on small businesses and retail borrowers. Small borrowers and entities in the unorganised sector are the focus of the RBI’s relief measures. In addition, the central bank has taken steps to address the credit needs of the healthcare sector, which is a welcome development.

The measures are timely and in the right direction, but the banks’ implementation is crucial. Forecasts for India’s GDP growth did not include the possibility of a devastating second Covid wave. The impact of such a virulent strain of SARS-CoV2 on the economy was not considered by the authorities, the public, forecasters, or economists.

This wave is unique. While the economy was affected by the nationwide lockdown in the first wave, there are currently no nationwide restrictions, but a large number of workers, including their families, becoming ill has disrupted work across several sectors.

Restrictions on movement in and business and in the affected area have curtailed the spread of the virus, with negative consequences for the local economy. It has a negative impacts on the supply and demand sides of the economy. Refrigerator and air conditioner sales have suffered as a result. Similarly, industries such as airlines, hotels, and tourism are suffering as a result of the high prevalence of Covid. The April data for durables, automobiles, fashion, lifestyle, and food also showed a significant drop.

This time, the demand shock could be greater than the supply shock that dominated the first wave. With the demand shock arising from the well-off, whose share of expenditure is disproportionately large, the uncertainty in business incomes and the outlook for Covid has the potential to hit GDP more severely from the demand side than in the first wave.