The Reserve Bank of India said in its annual report for 2019-’20 published on Tuesday that the improvement in economic activity in May and June seems to have lost strength in July and August, mainly due to the reimposing of some lockdown restrictions to combat the spread of the coronavirus. Therefore, contraction in the Indian economy could continue into the second quarter of 2020-’21, i.e. July-September.

The RBI said the pandemic could cause a structural downshift in the potential output of the Indian economy. “As in the rest of the world, India’s potential output can undergo a structural downshift as the recovery driven by stimulus and regulatory easing gets unwound in a post-pandemic scenario,” the RBI said, according to Moneycontrol.

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Meanwhile, economic recovery is likely to be very different from that experienced following the global financial crisis of 2008-’09, because while that crisis came after years of robust growth, Covid-19 has hit during an economic slowdown. “So far, policy authorities have responded with an unprecedented defence, involving conventional and unconventional measures in order to mitigate the unconscionable human and economic casualties [due to the pandemic],” the RBI said.

The RBI said that government consumption will continue to support current economic demand, while private consumption will drive the economic recovery when the impact of Covid-19 reduces. The unreliability of the southwest monsoon and volatility in the global financial market will drive down growth, the central bank said.

The RBI also said that because people have remained indoors, the use of cash increased exponentially, forcing it to undertake expansionary policy measures to ensure adequate liquidity in the market.

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The pandemic will inflict “deep disfigurations” on the world economy, the central bank said, according to NDTV. The future will be determined by the intensity, spread and duration of the pandemic, as well as the production of a vaccine.

The central bank said Indian banks have to abandon their policy of high risk aversion, which impedes credit growth to productive sectors of the economy. “Indian banking has to be liberated from the risk aversion that is impeding the flow of credit to the productive sectors of the economy and undermining the role of banks as the principal financial intermediaries in the economy,” the annual report said. Banks have significantly slowed down lending during the coronavirus pandemic, fearing loan defaults in future.

The central bank has infused Rs 8 lakh crore to Rs 9 lakh crore through various schemes into the banking system since March. It has also reduced the repo rate, by a total 115 basis points. Repo rate is the rate at which the central bank of a country lends to commercial banks. However, these measures have not helped push credit growth much.

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RBI declares annual income of Rs 1.93 lakh crore

Meanwhile, the RBI declared an annual income of Rs 1,93,036 crore in the 2019-’20 financial year, compared to Rs 1,49,672 crore in 2018-’19. The central bank’s financial year begins in July and ends in June.

The RBI also said that no currency notes of Rs 2,000 denomination were printed in the 2019-’20 financial year, Mint reported. The number of Rs 2,000 currency notes in circulation reduced from 33,632 lakh pieces on March 31, 2018 to 32,910 lakh pieces on March 31, 2019 and further to 27,398 lakh pieces on March 31 this year. On the other hand, the circulation of notes of Rs 500 and Rs 200 denomination has increased significantly, the RBI’s annual report said.

The report added that of the Fake Indian Currency Notes detected in the 2019-’20 financial year, 4.6% were detected at the central bank and 95.4% by other banks. A total of 2,96,695 pieces of counterfeit notes were discovered. There was an increase in the number of counterfeit notes of Rs 10, Rs 50, Rs 200 and Rs 500 denomination, and decrease in the counterfeit currency of Rs 20, Rs 100 and Rs 2,000.