Indian economy will take 15 years to overcome Covid losses, says RBI report. Here are the key takeaways.

The Reserve Bank of India on Friday released the Report on Currency and Finance (RCF) for the year 2021-22. The report stated that it will take the Indian economy 15 years to make up for the losses incurred due to the pandemic.

INDIAN ECONOMY HIT HARD BY THE PANDEMIC

The latest RBI report paints a grim picture of the Indian economy. The theme of the report is ‘Revive and Reconstruct’ in the context of nurturing a durable recovery post-Covid and raising trend growth in the medium-term.

According to RBI, the country now 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 and sustainability.

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The report states that for the country to hop on to a strong and sustainable growth path, price stability is a necessary precondition.

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

NEED OF THE HOUR: PROVIDING OPPORTUNITIES FOR ENTREPRENEURS AND BUSINESSES

The report puts emphasis on providing opportunities for entrepreneurs and businesses.

Reserve Bank of India Governor Shaktikanta Das, in the foreword to the report wrote, “It was not sufficient to just stabilise the economy and return it to its pre-first wave path.” The task at hand, according to Das, was to create a virtuous cycle of greater opportunity for entrepreneurs, businesses, and the fiscal authority.

For the country 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.

“Taking 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 report stated.

While the RBI expects the Indian economy to grow at 6.3 per cent in FY24, the International Monetary Fund’s latest World Economic Outlook report pegged India’s growth rate for FY24 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.

India’s real GDP in FY22 is estimated to be Rs 147.54 lakh crore.

STRUCTURAL CHANGES NEED TO BE MADE TO PUSH ECONOMY BACK ON GROWTH PATH

According to the Central Bank’s staff, timely rebalancing of monetary and fiscal policies will likely be the first step in the recovery of the economic journey.

Suggested 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; and encouraging urban agglomerations by improving the housing and physical infrastructure.

Industrial revolution 4.0 and the 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.

India’s ongoing and future free trade agreement (FTA) negotiations may focus on transfer of technology and better trade terms for high-quality imports from partner countries.