Public-pvt investment combo could trigger sustained growth: RBI
STORIES, ANALYSES, EXPERT VIEWS
Despite the adverse impact of the second Covid wave on a quick economic revival, Reserve Bank of India (RBI) in its annual report, said the nation is on the “cusp” of strong growth if the government’s capital expenditure combines with companies’ investment cycle.
Government spending on infrastructure could unleash pent-up demand in the economy and create the sufficient climate for all-round development. The central bank for its part will persist with easy monetary policy during the year to ensure that growth gains traction.
“The Indian economy is at a cusp,” said the RBI report. “A virtuous combination of public and private investment can ignite a shift towards investment and thereby to a trajectory of sustained growth. Fiscal policy, with the largest capex budget ever and emphasis on doing business better, has swung into a crowding-in role. It is apposite now for Indian industry to pick up the gauntlet.’’
Most optimistic scenario: Covid’s second wave may have caused more fatalities and hospitalisations than the first one, but the economic costs could be contained. “The macroeconomic costs of this wave can be limited to Q1 with possible spillovers into July,” it said. “This is the most optimistic scenario that can be envisaged at this juncture.”
Wounded services sector: While the broad economy is still holding out with reasonable strength, the key services sector that employs a majority of the population remains crippled with partial lockdowns. “The services sector is still wounded,” the RBI said. “The outlook was brightening in Q4 with multi-speed paths out of the pandemic among different sub-sectors.”
Regulatory measures: The central bank pointed to regulatory measures being implemented. “Several measures are expected to be put in place, including a review of the regulations applicable to all the regulated entities engaged in microfinance; guidelines on dividend distribution by non-banking financial companies and scale-based regulation for them.’’
Government’s role: While appreciative of the government’s role in pump priming the economy with fiscal measures aimed at infrastructure spending, it has cautioned that the Centre should be geared to pull back at signs of revival. “As growth revives and economy gets back on track, it is important for the government to adhere to a clear exit strategy and build fiscal buffers, which can be tapped into in events of future shocks to growth,’’ the annual report said.
But the RBI is promising to stay the course. “The conduct of monetary policy in 2021-22 would be guided by evolving macroeconomic conditions, with a bias to remain supportive of growth till it gains traction on a durable basis,” said the report.
