Reserve Bank of India Governor Shaktikanta Das on Saturday said the Indian economy has started showing signs of returning to normalcy in response to the staggered easing of lockdown restrictions, PTI reported. However, it is still uncertain what kind of durable effects the pandemic will leave behind on potential growth, he said.

Das added that it is also unclear by when supply chains will be restored fully, or how long would it take for demand conditions to normalise. The need of the hour is to restore confidence, preserve financial stability, revive growth and recover stronger, he said at the seventh State Bank of India Banking and Economics Conclave.

India had imposed a nationwide lockdown on March 25, which had upended businesses and stalled all economic activity in the country. It was slowly eased, and by June 1, most non-essential services were allowed to operate in non-containment zones in the country, subject to policies made by states. The second phase of easing lockdown restrictions, called “Unlock 2.0”, started on July 1. Many curbs on movement have been relaxed, though schools, cinemas, gyms and bars remain shut.

“Post containment of Covid-19, a very careful trajectory has to be followed in orderly unwinding of counter-cyclical regulatory measures,” Das said. “The financial sector should return to normal functioning without relying on the regulatory relaxations as the new norm.”

Das said the central bank’s broader objective is to maintain the balance between preserving financial stability, maintaining banking system soundness and sustaining economic activity. “The conventional and unconventional monetary policy and liquidity measures by RBI have been aimed at restoring market confidence, alleviating liquidity stress, easing financial conditions, unfreezing credit markets and augmenting the flow of financial resources to those in need for productive purposes,” he added.

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Despite the substantial impact of the coronavirus pandemic, the country’s financial system, including all the payment systems and financial markets, are functioning without any hindrance, Das said. “RBI is making continuous assessment of the changing trajectory of financial stability risks and upgrading its own supervisory framework to ensure that financial stability is preserved,” he added. “Banks and financial intermediaries have to be ever vigilant and substantially upgrade their capabilities with respect to governance, assurance functions and risk culture.”

The RBI governor was of the opinion that Indian companies and industries respond better in a crisis. Besides this, targeted and comprehensive reform measures already announced by the government should help in supporting growth, he said.

“The Monetary Policy Committee has reduced policy rates by 250 basis points since February 2019 to support growth,” he added. “Possibly in a vastly different post-Covid global environment, reallocation of factors of production within the economy and innovative ways of expanding economic activity could lead to some rebalancing and emergence of new growth drivers.”

The RBI is also working towards enhancing its off-site surveillance mechanism, Das said. The objective of the off-site surveillance system would be to “smell the distress”, if any, and be able to initiate pre-emptive actions, he added.