RBI Annual Report 2019-20

“The upticks that became visible in May and June after the lockdown was eased in several parts of the country, appear to have lost strength in July and August, mainly due to reimposition or stricter imposition of lockdowns, suggesting that contraction in economic activity will likely prolong into the second quarter,”
the RBI said.

According to the RBI, private consumption should drive the recovery when it takes hold, and government consumption should remain pandemic-proof of demand.

“Private consumption has lost its discretionary elements in all areas, especially transportation services, hospitality, recreation and culture,”
RBI

The RBI said the recovery will come when non-discretionary spending – expenses people can’t live without, like food and rent – lead the way, with a lasting increase in disposable income that allows for discretionary spending like vacations and entertainment.
The central bank has warned that high-frequency indicators so far point to an unprecedented reduction in activity in history.
Rating agencies and analysts predict a contraction of up to 20% of GDP in the first quarter of 2020-2021 due to the blockage induced by the Covid-19 pandemic.

The RBI has injected nearly Rs 10 lakh crore since March into the markets and reduced the repurchase rate, the key rate, by 115 basis points to 4% to revive growth and stabilize the financial system.

The Reserve Bank’s survey in July indicated that consumer confidence had fallen to an all-time low, with the majority of respondents reporting pessimism about the overall economic situation, employment, inflation and to income. However, respondents indicated recovery expectations for next year, the RBI said.

According to the central bank, the pandemic has also revealed new inequalities

Administrative workers can work from home, while essential workers must work on site, exposed to the risk of infection. In some fields of work such as hospitality, hospitality and catering, airlines and tourism, job losses are more severe than in other fields. “The poorest were the most affected,” The RBI said.

Urban consumer demand has been hit hard; passenger car sales and the supply of durable consumer goods in the first quarter of 2020-2021 fell to one-fifth and one-third, respectively, from their previous level of one year, Air passenger traffic has stopped. On the contrary, rural demand has performed better.
Citing examples of a slowing recovery, the RBI said total e-ticketing, an indicator of domestic business activity, increased 70.3% in June 2020 on a monthly basis.
In July, however, it rose only 11.4% and remained 7.3% lower than a year ago.
In June 2020, interstate electronic highway bills had increased by 91.3%, but in July they only increased by 15.3%.
Likewise, intra-state e-transport bills, which had risen 60.1% (month-over-month) in June, only rose 9.1% in July.
Google’s mobility trend, which tracks the movement of people as a reflection of underlying economic activity, rebounded in June 2020 from its April and May levels.
Mobility around grocery stores and pharmacies reached pre-Covid levels, while mobility related to retail and entertainment was around 60% and transit activity was 40% lower than that of February 2020, said the RBI.
In July, however, moderation prevailed, with stagnant commercial and recreational mobility and some decline in the movement of people in supermarkets and pharmacies, RBI said.
The RBI report said headline inflation may remain high in Q2: 2020-2021, but may moderate in H2: 2020-2021, thanks to large favorable base effects. Retail inflation was 6.93% in July, above the upper tolerance limit of 6% (target of 4% plus 2%).
Noting that rural demand, on the other hand, had performed better, the RBI report states that among the underlying indicators, tractor sales rose 38.5% in July, due to the high planting rate kharif, while the contraction in motorcycle sales eased in July.
However, the central bank said a fuller recovery in rural demand was being held back by modest wage growth, which was still held hostage by the migration crisis and associated job losses.
The RBI said the Monetary Policy Committee (MPC) expected headline inflation to remain high in the second quarter of the current fiscal year, but likely to decline in the second.

RBI Report highlights

Currency notes of Rs. 2,000 denomination were not printed in 2019-20 and the circulation of these notes have declined over the years, according to RBI’s annual report.
The number of Rs. 2,000 currency notes in circulation has come down from 33,632 lakh pieces at end-March 2018 to 32,910 lakh pieces at end-March 2019 and further to 27,398 lakh pieces at end-March 2020, the RBI Annual Report said.
The number of pieces of Rs. 2,000 denomination notes constituted 2.4 per cent of the total volume of notes at end-March 2020, down from 3 per cent at end-March 2019 and 3.3 per cent at end-March 2018.
In value terms also, the share has came down to 22.6 per cent at end-March 2020, from 31.2 per at end-March 2019 and 37.3 per cent at the end-March 2018.
On the other hand, the circulation of currency notes of denomination of Rs. 500 and Rs. 200 has gone up substantially, both in terms of volume and value over the three years beginning 2018.
The RBI report further revealed that no indent for printing of Rs. 2,000 currency notes was made during 2019-20 and no fresh supplies were made by BRBNMPL (Bharatiya Reserve Bank Note Mudran Private Limited) and SPMCIL (Security Printing and Minting Corporation of India Limited).
“The indent of banknotes for 2019-20 was lower by 13.1 per cent than that of a year ago.
The supply of banknotes during 2019-20 was also lower by 23.3 per cent than in the previous year mainly due to the disruptions caused by the outbreak of COVID-19 and the ensuing lockdown,” it said.
On Rs. 500 denomination notes, the RBI said indent for printing of 1,463 crore pieces were issued and 1,200 crore pieces were supplied during 2019-20. This compares with indent of 1,169 crore pieces and 1,147 crore supply during 2018-19.
The order was also given to BRBNMPL and SPMCIL for printing currency notes of Rs. 100 (330 crore pieces), Rs. 50 (240 crore pieces), Rs. 200 (205 crore pieces), Rs. 10 (147 crore pieces) and Rs. 20 (125 crore pieces) during 2019-20. A large number of them were also supplied during the fiscal for circulation.
The report also said that during 2019-20, out of the total Fake Indian Currency Notes (FICNs) detected in the banking sector, 4.6 per cent were detected at the Reserve Bank and 95.4 per cent by other banks. A total of 2,96,695 pieces of counterfeit notes were detected.
Compared to the previous year, there was an increase of 144.6 per cent, 28.7 per cent, 151.2 per cent and 37.5 per cent in counterfeit notes detected in the denominations of Rs. 10, Rs. 50, Rs. 200 and Rs. 500 [Mahatma Gandhi (New) Series], respectively.
Counterfeit notes detected in the denominations of Rs. 20, Rs. 100 and Rs. 2,000 declined by 37.7 per cent, 23.7 per cent and 22.1 per cent, respectively, the report said.
The number of counterfeit notes of Rs. 2,000 detected was 17,020 pieces during the last fiscal, down from 21,847 in 2018-19.
The Reserve Bank also said it has undertaken several initiatives to introduce varnished banknotes in Rs.100 denomination on a field trial basis.
However, the process of printing of these notes has been delayed due to disruptions caused by the COVID-19 pandemic and certain other developments.