India better placed as global economy takes a bad hit: RBI
The Reserve Bank of India (RBI) in its Annual Report
2021-22 said that undertaking structural reforms to improve India’s mediumterm growth potential holds the key to secure sustained, balanced and inclusive growth.
The central bank said that India’s economic recovery from the pandemic depths has been sustained in 2021-22 and the momentum is expected to broadly continue in 202223, though with risks to the downside from the geopolitical shock and its spillovers.
“The future path of growth will be conditioned by addressing supply-side bottlenecks, calibrating monetary policy to bring inflation within the target while supporting growth and targeted fiscal policy support to aggregate demand, especially by boosting capital spending.” Such reforms are also warranted in the labour market so as to adapt to the pandemic by reskilling workers.
The Annual Report released on Friday said that despite the risks from geopolitical shocks and its spillovers, the recovery in India is getting entrenched and is broadening. Overall consumer and business confidence remains resilient in spite of the third wave on the back of the accelerated pace of vaccination and better prospects for economic activity. A full recovery in aggregate demand is, however, contingent on a turnaround in private investment. On the supply side, there is a resurgence in mining and manufacturing sectors. The services sector, which felt the brunt of the pandemic, is staging a broad-based recovery since Q2:2021-22.
The report has also highlighted that capacity utilisation in several industries is moving closer to normal levels but rising input costs and persisting supply bottlenecks may impede or delay a fuller recovery. With inflation surging worldwide, the report showed the central bank’s dilemma to tame rising price pressures without hurting economic growth. The persistence of high inflation is forcing countervailing monetary policy action at a time when supporting the economic recovery should have been assigned priority, said the RBI.
The central bank in an off-cycle meeting raised the repo rate in early May and said that the monetary policy remains accommodative but focused on the withdrawal of accommodation.
Speaking about global recovery, the central bank said it is expected to suffer a significant loss of momentum in 2022. The risks are large and to the downside from the escalation in the Russia-Ukraine war leading to shortages of raw materials as global supply chains continue to remain distorted, even before they could recover from the pandemic-led distortion. The report said that the resurgence of the pandemic, a slowdown in China, and the climate stress overshooting the Paris agreement goals were the other economic worries for the world.