RBI on how to trigger sustained growth

Mumbai: The second Covid wave may have put the brakes on a quick economic revival, but the nation is on the “cusp” of strong growth if the government’s capital expenditure combines with companies’ investment cycle, the Reserve Bank of India (RBI) said in its annual report.Services sector is still “wounded,” but the focus of government spending on infrastructure could unleash pent-up demand in the economy and create the sufficient climate for all-round development, it said. 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.’’The central bank has been coming up with policy measures to revive the economy since March 2020 when the government locked down the nation to prevent Covid-19 infections. Since then it has cut rates, raised liquidity and launched special pandemic-relief initiatives. The government has joined in with higher spending.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.”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.” 83017220The 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.’’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.

from Economic Times https://ift.tt/3wHDn75