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


“Feasible range for medium-term steady GDP growth in India is 6.5% to 8.5%”

“Feasible range for medium-term steady GDP growth in India is 6.5% to 8.5%”

According to the Reserve Bank of India (RBI) Report on Currency and Finance (RCF), it may take more than a decade for the Indian economy to recover from the losses caused by the outbreak of the COVID-19 pandemic.

“The pandemic is an inflection point and the structural changes catalyzed by the pandemic have the potential to alter the growth trajectory in the medium term,” the authors noted.

“The pre-COVID trend growth rate is 6.6% and 7.1% excluding the years of slowdown. Assuming an actual growth rate of (-) 6.6% for 2020-21, 8.9% for 2021-22 and an assumed growth rate of 7.2% for 2022-23 and 7.5% beyond, it is expected that India will overcome COVID-19 losses in 2034. 35,” they said in a chapter titled “Scars of the Pandemic.”

“The production loss for individual years was calculated as 19.1 lakh crore, 17.1 lakh crore and 16.4 lakh crore for 2020-21, 2021-22 and 2022-23,” they added.

The theme of the report for 2021-22 is “Recovery and Recovery” in the context of promoting a durable post-COVID recovery and boosting trend growth in the medium-term.

“The report reflects the views of contributors and not the Reserve Bank,” RBI said.

According to the RCF, a feasible range for medium-term steady GDP growth in India is 6.5% to 8.5%, which is in line with the reform plan, and “a timely rebalancing of monetary and fiscal policies will likely be the first step on this path be .

stability as a prerequisite

The authors stressed that price stability was a necessary condition for strong and sustainable growth and emphasized reducing general government debt below 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 proposed structural reforms include improving access to low-cost land without litigation; Improving quality of work through public spending on education and health and the Skill India Mission; Expansion of R&D activities with a focus on innovation and technology; Creating an enabling environment for startups and unicorns; rationalization of subsidies that encourage inefficiencies; and promoting urban agglomerations by improving housing and physical infrastructure.

According to the report, India suffered one of the largest pandemic-related losses in the world in terms of output, lives and livelihoods, which may take years to recover.

“Economic activity has barely recovered to pre-COVID levels, even after two years. India’s economic recovery also faces difficult challenges from the legacy of deep-seated structural bottlenecks as well as the scars of the pandemic.

“The Russia-Ukraine conflict has also dampened the momentum of the recovery, with its impact translating into record high commodity prices, weakening global growth prospects and tighter global financial conditions,” they added.

The authors noted that concerns about deglobalization affecting future trade, capital flows and supply chains have increased uncertainties for the business environment. They also stressed that against this background, India’s medium-term growth prospects crucially depended on policy measures to address structural bottlenecks and capitalize on emerging new growth opportunities.

“Policy focus is now gradually shifting to reviving growth – even as fiscal stance is aimed at regenerating the investment cycle, monetary policy remains accommodative while focusing on withdrawing adjustment to ensure inflation is contained stays within target in the future. while supporting growth,” they said.

According to the report, balance sheets have weathered the pandemic by deleveraging and increasing cash, but the appetite for investment that should fuel a renewed investment cycle is still weak.

Weak household balance sheets and workers displaced by contact-intensive activities had an impact on consumer demand and the quality of capital, the authors said.

In the report’s foreword, RBI Governor Shaktikanta Das said stabilizing the economy and pulling it out of the depths to which it plunged during the first wave of infections and the dips of subsequent waves is not enough.

“The challenge is to create a virtuous circle that gives entrepreneurs more opportunities to innovate and invest; companies to attract more capital and technology; and fiscal space to manage the distributional effects of the pandemic while expanding public investment in physical infrastructure and human capital,” he said.

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