Only private investment is "missing in action" at a time when all engines of aggregate demand are starting to fire to boost economic growth, according to a Reserve Bank article.
Observing that there is little doubt today that a recovery based on a revival of consumption is underway, the RBI in the recent article said, "the jury leans towards such recoveries being shallow and short-lived”.
The key to whet the appetite for investment, it said, is to rekindle the animal spirits, a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.
"All engines of aggregate demand are starting to fire; only private investment is missing in action. The time is apposite for private investment to come alive,” said the article prepared by RBI Deputy Governor Michael Debabrata Patra and other officials.
The article published in the RBI Bulletin- February 2021 further said "the time is apposite” for private investment to come alive.
Fiscal policy, with the largest capital expenditure (capex) budget ever and emphasis on doing business better, has offered to crowd it in.
"Will Indian industry and entrepreneurship pick up the gauntlet?,” it said.
The Indian economy is estimated to contract by 8 per cent during the current financial year on account of the impact of the COVID-19 pandemic.
The economy is expected to stage a V-shape recovery in the next fiscal and record double-digit growth.
An another article 'Sectoral Deployment of Bank Credit in India: Recent Developments' published in the Bulletin said that the muted credit offtake in the recent past needs to be seen in the context of economic slowdown coupled with the COVID-19-induced lockdown.
The RBI said the views expressed in the articles are those of the authors and do not necessarily represent the views of the Reserve Bank of India.
Bank credit growth, which had already started decelerating in 2019-20, experienced a further setback in 2020-21 in the wake of the pandemic.
However, with the gradual resumption of economic activity, credit to agriculture and services sectors has registered accelerated growth in the recent period, it said.
Even in the industrial sector, credit growth to medium industries has accelerated, indicative of positive impact of several measures taken by the government and the Reserve Bank of India (RBI).
"However, contraction in credit to large industries and infrastructure remains a cause of concern,” it said.
The Reserve Bank has taken several measures to facilitate credit flow to various sectors of the economy, especially to the MSME and NBFC sectors.
Credit offtake is expected to pick up as the economy is poised to stage a smart recovery in 2021-22 on the back of decline in coronavirus infections and swift roll-out of the vaccination programme.
This is in addition to a number of measures announced by the government in the Union Budget 2021-22 to accelerate the growth momentum, the article said.
As per the article, the recent decline in credit growth was mainly due to large industries.
"Owing to the stressed assets in large industries, there was a general reluctance on the part of bankers to lend to these industries, with the problem getting compounded by the pandemic,” it said.