Economy may take more than a decade to overcome COVID-19 losses: RBI report

What is the News?

The Reserve Bank of India has released the Report on Currency and Finance (RCF) for the year 2021-22. 

Theme of the Report: ‘Revive and Reconstruct’ in the context of nurturing a durable recovery post-Covid and raising trend growth in the medium-term.

What are the key highlights from the report?

Covid-19 Impact on Indian Economy: Covid-19 pandemic is a watershed moment and the ongoing structural changes catalyzed by the pandemic can potentially alter the growth trajectory in the medium term. For instance, the Indian economy is likely to take over 12 years to overcome the COVID-19 losses.

Russia-Ukraine Conflict: The Russia-Ukraine conflict has dampened the momentum of recovery, with its impact transmitting through record-high commodity prices, weaker global growth outlook and tighter global financial conditions.

Deglobalization threat: Concerns surrounding deglobalisation impacting future trade, capital flows and supply chains have amplified uncertainties for the business environment.

What are the reforms suggested by the report?

Seven Wheels of Economic Progress: The blueprint of reforms proposed in the Report revolves around seven wheels of economic progress: 1) Aggregate demand, 2) Aggregate supply Institutions, 3) Intermediaries and markets, 4) Macroeconomic stability and policy coordination, 5) Productivity and technological progress, 6) Structural change and 7) Sustainability.

Rebalancing of Monetary and Fiscal Policies: Timely rebalancing of monetary and fiscal policies will likely be the first step in this journey.

Price Stability: Price stability is a necessary precondition for strong and sustainable growth.

Reducing Government Debt: Reducing general government debt to below 66% of GDP over the next five years is important to secure India’s medium-term growth prospects.

Promoting Industrial revolution 4.0: Industrial revolution 4.0 and committed transition to a net-zero emission target warrant a policy ecosystem that facilitates the provision of adequate access to risk capital and a globally competitive environment for doing business.

Better FTA Negotiations: India’s ongoing and future free trade agreement (FTA) negotiations may focus on the transfer of technology and better trade terms for high-quality imports from partner countries to improve the outlook for exports and domestic manufacturing.

Other Structural Reforms: The report has suggested several structural reforms which include: 1) Enhancing access to litigation free low-cost land, 2) Raising the quality of labor through public expenditure on education and health and the Skill India Mission, 3) Scaling up R&D activities with an emphasis on innovation and technology, 4) Creating an enabling environment for start-ups and unicorns, 5) Rationalization of subsidies that promote inefficiencies and 6) Encouraging urban agglomerations by improving the housing and physical infrastructure.

Source: The post is based on the article “Economy may take more than a decade to overcome COVID-19 losses: RBI report” published in The Hindu on 29th April 2022.