RBI released its Report on Currency and Finance (RCF) for the year 2021-22.
It states that the Indian economy will take 15 years to recoup the losses incurred due to the pandemic.
The report’s theme is ‘Revive and Reconstruct’ in the context of nurturing a durable recovery post-Covid and raising trend growth in the medium-term.
Seven Focus Points
The RBI believes that India needs to focus on seven wheels of economic progress –
- Aggregate demand
- Aggregate supply
- Institutions, intermediaries and markets
- Macroeconomic stability and policy coordination
- Productivity and technological progress
- Structural changes
Requirements For Growth
Price stability is a necessary prerequisite for the country to pursue a strong and sustainable growth path.
Reducing general government debt to below 66 per cent of GDP over the next five years is another requirement to secure India’s medium-term growth prospects.
The report also emphasised the need to provide opportunities for entrepreneurs and businesses.
RBI Governor Shaktikanta Das wrote in the foreword that it is not enough to just stabilise the economy and return it to its pre-first wave path.
What needs to be done is to create a virtuous cycle of greater opportunity for entrepreneurs, businesses, and the fiscal authority.
In order to get the economy back on track, a feasible range for medium-term steady state GDP growth works out to 6.5-8.5 per cent, which is consistent with the blueprint of reforms.
The report elaborates that considering the actual growth rate of 6.6 percent for 2020-21, 8.9 percent for 2021-22 and assuming growth rate of 7.2 percent for 2022-23, and 7.5 percent beyond that, India is expected to overcome Covid-19 losses in 2034-35.
The RBI estimates the economy to grow at 6.3 per cent in FY24 and the International Monetary Fund’s latest World Economic Outlook report pegs it at 6.9 per cent.
Data analysis shows that the output losses, in monetary terms, stood at Rs 19.1 lakh crore for FY21, Rs 17.1 lakh crore for FY22 and Rs 16.4 lakh crore for FY23.
Necessary Structural Reforms
India’s real GDP in FY22 is estimated to be Rs 147.54 lakh crore.
The Central Bank believes that timely rebalancing of monetary and fiscal policies is likely to be the first step towards economic recovery.
Recommended structural reforms include:
- Enhancing access to litigation free low- cost land
- Raising the quality of labour through public expenditure on education and health and the Skill India Mission
- Scaling up R&D activities with an emphasis on innovation and technology
- Creating an enabling environment for start-ups and unicorns
- Rationalisation of subsidies that promote inefficiencies
- Encouraging urban agglomerations by improving the housing and physical infrastructure
Industrial revolution 4.0 and the committed transition to a net-zero emission target needs a policy ecosystem that facilitates access to risk capital and a globally competitive environment for doing business.
India’s ongoing and future free trade agreement negotiations may stress upon transfer of technology and better trade terms for high-quality imports from partner countries.