Saturday, 28 January 2023

Indian Economy to take 12 years to overcome Covid losses: RBI

Indian Economy to take 12 years to overcome Covid losses: RBI

India is likely to take another 13 years to overcome the losses incurred due to the pandemic that hit in March 2020, says a Reserve Bank of India (RBI) report.

Taking the real growth rate of (-) 6.6 percent for 2020-21, 8.9 percent for 2021-22, and assuming a 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, according to the RBI's Report on Currency and Finance in 2021-22.

The central bank said the output losses for individual years have been worked out to Rs 19.1 lakh crore, Rs 17.1 lakh crore, and Rs 16.4 lakh crore for 2020- 21, 2021-22, and 2022-23, respectively.

"The pandemic is not yet over," the RBI said. A fresh wave of Covid has hit China, South Korea, and several parts of Europe. However, various economies are reacting divergently, ranging from a no-Covid policy in some jurisdictions (e.g., China, Hong Kong, and Bhutan) on the one hand to those with relatively open borders and removal of internal restrictions (e.g., Denmark and the UK), it said.

"In India, the restriction levels are dynamically calibrated at local levels in response to the evolving situation," the RBI said. With the ongoing Russia-Ukraine conflict, the downward risks to global and domestic growth are accentuated through a surge in commodity prices and global supply chain disruptions.

Indian Economy to take 12 years to overcome Covid losses RBI 1unsplash image

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The supply constraints and longer delivery times pushed up shipping costs and commodity prices, intensifying inflationary pressures and threatening the nascent economic recovery worldwide. The report said that India too felt pressure from the global supply chain disruptions, with the supplier's delivery time falling to its lowest point of 29.5 in April 2020.

The blueprint of reforms proposed in the RBI report revolves around seven wheels of economic progress: aggregate demand, aggregate supply, institutions, intermediaries and markets, macroeconomic stability and policy coordination, productivity and technological progress, and structural change and sustainability.

It said a feasible range for medium-term steady-state GDP growth in India is 6.5–8.5 percent, consistent with the blueprint of reforms. "Timely rebalancing monetary and fiscal policies will likely be the first step in this journey," the RBI report said.

It also said price stability is necessary for solid and sustainable growth. The RBI said that reducing general government debt to below 66 percent of GDP over the next five years is essential to secure India's medium-term growth prospects.

The report suggested structural reforms, including enhancing access to litigation free, low-cost land, raising the quality of labor 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 startups and unicorns, rationalizing subsidies that promote inefficiencies, and encouraging urban agglomerations by improving the housing and physical infrastructure.

It said.

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

'Wean away PSU banks from dependence on govt recap.'

The RBI said PSU banks should not be dependent on the government for recapitalization. It is necessary to remove PSBs from dependence on government recapitalization in the medium term. This will be an essential pre-condition to achieving greater sector privatization, said the RBI's Report on Currency and Finance.

The RBI's 'on tap' licensing policy for universal and small finance banks may be used effectively to increase the banking sector's competition and introduce innovation. However, it said that capital infusion should not become a substitute for better governance and risk controls.

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