‘Probable range of medium-term stable GDP growth in India 6.5%-8.5%’
‘Probable range of medium-term stable GDP growth in India 6.5%-8.5%’
According to the Reserve Bank of India’s (RBI) Currency and Finance (RCF) report, it may take more than a decade for the Indian economy to recover from the damage caused by the outbreak of the COVID-19 pandemic.
“The pandemic is a watershed moment and structural changes catalyzed by the pandemic could potentially alter the growth trajectory in the medium term,” the authors said.
“The pre-COVID trend growth rate works out to 6.6% and it works out to 7.1% except in the recession years. Assuming real growth rates of (-) 6.6% for 2020-21, 8.9% for 2021-22 and 7.2% for 2022-23 and 7.5% beyond, India will recover from the loss of COVID-19 in 2034 Expected- 35,” he said in a chapter titled “Scars of the Epidemic.”
He said, “The production loss for individual years has been worked out to ₹19.1 lakh crore, ₹17.1 lakh crore and ₹16.4 lakh crore for 2020-21, 2021-22 and 2022-23 respectively.
The theme of the report for 2021-22 is “Revitalize and Rebuild”, in the context of nurturing a sustainable recovery post-Covid and accelerating trend growth over the medium term.
“The report reflects the views of the contributors and not that of the Reserve Bank,” RBI said.
According to the RCF, a possible range of medium-term stable GDP growth in India is 6.5%-8.5%, which is in line with the reforms blueprint and ‘timely rebalancing of monetary and fiscal policies will be the first step in this journey’. ,
stability as a precondition
Highlighting that price stability was a necessary precondition for strong and sustainable growth, the authors emphasized the need to reduce the general government debt to less than 66% of GDP over the next five years. According to the report, this is important to secure India’s medium-term growth prospects.
Some of the structural reforms suggested include increasing access to litigation-free low-cost land; Enhancing the quality of labor through education and public expenditure on Health and Skill India Mission; Enhancing R&D activities with emphasis on innovation and technology; Creating an enabling environment for start-ups and unicorns; Rationalization of subsidies promoting disabilities; and, encouraging urban agglomerations by improving housing and physical infrastructure.
According to the report, India suffered the biggest pandemic-induced loss in the world in terms of production, life and livelihood, which may take years to recover.
“Economic activity has barely reached pre-COVID levels even after two years. India’s economic recovery faces tough challenges from the pandemic’s scars, along with a legacy of deep-rooted structural constraints, the authors said.
“The Russia-Ukraine conflict has also dampened the pace of recovery, with its effects channeled through record high commodity prices, a weak global growth outlook and tighter global financial conditions,” he said.
The authors pointed out that concerns about deglobalization affecting future trade, capital flows and supply chains had added to the uncertainties for the business environment. He also highlighted that against this background, India’s medium-term development outlook rests critically on policy measures to address structural constraints and tap new growth opportunities.
“The thrust of public policy action is now progressively shifting to revive growth – even as the fiscal policy stance aims to revive the capex cycle, focusing on a return to monetary policy adjustments. To ensure that inflation remains within the target, while supporting growth,” he said.
According to the report, the balance sheet has combated the pandemic by reducing and increasing liquid assets, but investment appetite that should motor a renewed capex cycle is still weak.
Weak domestic balance sheets and labor displaced by contact-intensive activity have affected consumption demand and the quality of capital, the authors said.
In the preface to the report, RBI Governor Shaktikanta Das said this was not enough to stabilize the economy and pull it out of the depths it fell during the first wave of infections and the dents made by the successive waves.
“The challenge is to generate a virtuous cycle of greater opportunity for entrepreneurs to innovate and invest; businesses to attract more capital and technology; and the pandemic while expanding public investment in physical infrastructure and human capital. fiscal space to manage the distributive effects of,” he said.