What the RBI and govt need to do NOW. First, this is a massive crisis for employment, incomes and just living. A shutdown may slow the virus (not stop it) but it will end up killing people of hunger.
Getting jobs back, after the shutdown, is important. If the system is allowed to default like crazy, people will lose their savings and trust also. There needs to be some confidence that the government and RBI are actually doing things to help people too.
The RBI has to cut rates. Because there is no point keeping rates up. If businesses who have loans can get to pay lower interest and stay up, that is worth it. We have very few people who live on interest (comparatively) and the older among those have 8%+ guaranteed govt schemes.
Beyond rates, there's more. The government will have to spend. Both on the medical situation, and on giving people money - direct benefit transfers - to help them through. And to guarantee loans to SMEs, and to spend on projects to kick start this back.
The RBI still has nearly 200,000 cr. in a contingency fund and by now, over 800,000 cr. in a currency revaluation reserve. These reserves are way too high, and in any case any contingency is handled by the govt, not RBI (even in Yes bank, that was the case)
The RBI should immediately provide for a 100,000 cr. dividend. This allows the govt to receive money without it being debt. This will reduce the RBI excess reserve on its balance sheet by less than 10%.
Note: this has nothing to do with forex reserves. Those are RBI *ASSETS*. An accounting reserve is a liability - in most countries, central banks are not allowed to load up liability reserves (they have to pay out to govt).
Apart from that the RBI should be targeting longer term rates below 5%, by buying govt bonds from the market. There need to be money mkt interventions too.
This is a crisis. We need to go beyond shutdowns and lockdowns to fix the bigger problem staring at the economy - incomes and jobs. Any lack of such focus and the poverty will kill far more than any virus.
