The government should understand that it is the prime mover. RBI’s liquidity measures, expansive and innovative as they have been, have only served to increase the volumes of cash the banks have been depositing with the RBI under reverse repo. Banks have not been lending to the public much. The new window RBI has opened for banks to access money to lend to contact-intensive services is likely to meet with the same fate as earlier targeted long-term repo operations: it would serve to keep RBI’s conscience clean while providing little additional lending to the target beneficiaries. Yet, it is true that record amounts are being raised through corporate bonds and commercial paper. This is a welcome development, aided by easy liquidity supported by RBI’s accommodative stance. However, if RBI were to include corporate bonds in its asset purchase programme or repo operations, the corporate bond segment would get what the bulk of the nation has been thirsting for: a shot in the arm.
The government must front-load its planned spending, apart from pressing ahead with the vaccination programme. The fate of the economy hinges on the government acting as the leading sector.