RBI?s report on Currency and Finance

RBI’s report on Currency and Finance

News: According to recent Reserve Bank of India’s (RBI) Report on Currency and Finance (RCF), the Indian economy may take more than a decade to overcome the losses caused by the outbreak of Covid-19 pandemic.
• The theme of the report is 'Revive and Reconstruct' in the context of nurturing a durable recovery postCovid-19 and rising trend growth in the medium-term.

Concerns highlighted by the Report:
• Its economic impact may linger for many more years and confront Indian Economy with the challenges of rebuilding livelihoods, safeguarding businesses and reviving the economy.
• India suffered among the biggest pandemic induced losses in the world in terms of output, lives and livelihoods, which may take years to recover.
• The pre-Covid trend growth rate works out to 6.6% and excluding the slowdown years it works out to 7.1%. Taking actual growth rate of (-) 6.6% for 2020-21, 8.9% for 2021-22 and assuming growth rate of 7.2% for 2022-23 and 7.5% beyond that, India is expected to overcome Covid-19 losses in 2034-35.
• The Russia-Ukraine conflict has also dampened the momentum of recovery, with its impact transmitting through record high commodity prices, weaker global growth outlook and tighter global financial conditions.
• Concerns surrounding deglobalisation impacting future trade, capital flows and supply chains have amplified uncertainties for the business environment.

Reforms as suggested by Report:
• Seven wheels of Economic Progress – The blueprint of reforms proposed in the report revolves around seven wheels of economic progress. It includes:
• Aggregate demand.
• Aggregate supply.
• Institutions, intermediaries and markets.
• Macroeconomic stability and policy coordination.
• Productivity and technological progress.
• Structural change.
• Sustainability.
• Timely rebalancing of monetary and fiscal policies will likely be the first step in this journey.
• Reducing general government debt to below 66% of GDP over the next five years is important to secure India’s medium-term growth prospects.
• Price stability is a necessary precondition for strong and sustainable growth.
• Following structural reforms are needed:
• Enhancing access to litigation free low-cost land.
• Raising the quality of labor 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.
• Rationalization of subsidies that promote inefficiencies.
• Encouraging urban agglomerations by improving the housing and physical infrastructure.
• Industrial revolution 4.0 and 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 the transfer of technology and better trade terms for high quality imports from partner countries to improve the outlook for exports and domestic manufacturing.