The Reserve Bank of India’s (RBI) recent Report on Currency and Finance (RCF) suggests that Covid-19’s impact on the Indian economy may take over a decade to recover from. The report, centered on the theme “Revive and Reconstruct,” discusses the need for a sustainable recovery after Covid-19 and growth in the long term.
The Concerns Highlighted by the Report
The report emphasizes the devastating implications of the Covid-19 pandemic, recognized as one of the worst health crises globally. It noted that pre-Covid growth rates were approximately 6.6% or 7.1%, excluding the slowdown years. With this in mind, projections suggest that India will recover from Covid-19 related losses around 2034-35, considering the actual growth rate of -6.6% for 2020-21, 8.9% for 2021-22, and estimated growth rates of 7.2% for 2022-23 and 7.5% beyond.
The economic aftermath of the pandemic could linger, with challenges to rebuild livelihoods, ensure business continuity, and revitalize the economy. Furthermore, external factors such as the Russia-Ukraine conflict and the threat of deglobalization have added to the uncertainties.
Proposed Reforms in the Report
The report outlines several proposed reforms revolving around seven fundamental areas: aggregate demand and supply, institutional infrastructure, policy coordination, technological growth, structural change, and sustainability. As per the report, India’s medium-term Gross Domestic Product (GDP) could range between 6.5 – 8.5%, considering these outlined reforms.
Balancing Monetary and Fiscal Policies
The report stresses the need for rebalancing monetary and fiscal policies to kickstart these reforms. It further emphasizes that price stability is crucial for steady economic growth, and suggests reducing government debt below 66% of the GDP over the next five years to secure India’s medium-term growth prospects.
Structural Reforms
The RCF recommends a set of structural reforms including enhancement of access to cost-effective, litigation-free land, improvement in labour quality through public expenditure on education and health, and scaling up research and development activities, focusing on innovation and technology.
Supporting Start-ups and Encouraging Urbanisation
Creating an environment conducive for start-ups and unicorns, rationalizing subsidies causing inefficiencies, encouraging urban growth by improving housing and physical infrastructure are other suggested measures.
Shifting Towards Industrial Revolution 4.0
Promoting Industrial revolution 4.0 and moving towards a net-zero emission target require policies that provide adequate access to risk capital and create a globally competitive business environment.
Advocating Better FTA Negotiations
Lastly, the report pointed out that India’s ongoing and future Free Trade Agreement (FTA) negotiations should focus on technology transfer and securing better trade terms for high-quality imports from partner countries to enhance the prospects for exports and domestic manufacturing.
The RBI’s Report on Currency and Finance highlights the long road to recovery for India’s economy post-Covid-19. It outlines a comprehensive set of reforms required to revive and reconstruct the Indian economy, emphasizing a need for balance between short-term pandemic recovery and long-term sustainable growth.
