India heading towards recession, says central bank

India's economic growth was expected to slip into the negative zone in 2020-2021 due to the impact of Covid-19, Reserve Bank of India (RBI) governor Shaktikanta Das said Friday.

Das also announced cuts in key rates by 40 basis points in an effort to increase liquidity in the system.

The country's national bank cut the repurchase rate it charges on loans to commercial banks to 4 per cent, down from 4.45 per cent. It cut the reverse repo, the rate at which it borrows from commercial banks, to 3.35 per cent.

India went into a nationwide lockdown from March 25 but has been gradually opening up economic activity over the past few weeks.

"Domestic economic activity has been impacted severely," Das said adding that it had been exacerbated by a collapse in demand.

Das did not give any projected figures but said there would be greater clarity on the magnitude of the GDP contraction as the impact of the Covid-19 lockdown was clearer by the end of May.

"A gradual revival is expected in the second half of 2021," the bank head added.

The global economy was inevitably heading into a recession with emerging economies expected to see a shrinking if 2.9 to 6.8 per cent, Das said.

India has been battling with a slowing growth of gross domestic product (GDP) even before the outbreak of the new coronavirus.

The GDP rate had contracted to a decade low of 5 per cent, according to 2019-2020 financial data. India's financial year runs from March to April.

Das also announced several measures to boost demand, support trade and ease financial stress.