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Price stability key for growth, says RBI report on currency and finance

A feasible range for medium-term steady-state GDP growth in India works out to 6.5 – 8.5 percent, the RBI report said.

April 29, 2022 / 04:10 PM IST

A Reserve Bank of India (RBI) report on April 29 said price stability is a necessary precondition for strong and sustainable growth besides proposing a seven-point blueprint for reforms.

The focus on price stability is significant as this comes shortly after the monetary policy committee (MPC), in its last policy meeting, highlighted the threats posed by high inflation in the economy and hinted that rate hikes are on cards.

According to the report on Currency and Finance (RCF) for the year 2021-22, the reforms should focus on aspects like aggregate demand, aggregate supply; institutions, intermediaries, and markets; macroeconomic stability, and policy coordination.

Further, the report has said a feasible range for medium-term steady-state GDP growth in India works out to 6.5 – 8.5 percent, consistent with the blueprint of reforms.

To achieve sustainable growth, timely rebalancing of monetary and fiscal policies will likely be the first step in this journey, said the RBI report, adding reducing general government debt to below 66 per cent of GDP over the next five years is important to secure India’s medium-term growth prospects.

The report suggested structural reforms including enhancing access to litigation free low-cost land; raising the quality of labour through public expenditure on education and health and the skill India mission.

Also, scaling up research and development activities with an emphasis on innovation and technology, creating an enabling environment for start-ups and unicorns, rationalisation of subsidies that promote inefficiencies, and encouraging urban agglomerations by improving the housing and physical infrastructure will be key, the report said.

“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,” the report said.

In the foreward of the report, RBI Governor Shaktikanta Das said  the challenge for the policymakers is to generate the virtuous cycle of greater opportunities for entrepreneurs.

The report said it is necessary for state-run banks to reduce their dependence on the government for recapitalization. Stronger corporate governance norms in the banking segment is a priority area, it said.

"It is not enough to stabilise the economy and pull it out of the depths to which it had plunged during the first wave of infections and the dents made by the succeeding waves," the Governor said.

The economy should generate a climate for entrepreneurs to innovate and invest, Das said adding businesses should be able to attract more capital and technology.

Further, the resilience of certain sectors like agriculture and allied activities, information technology services, exports, digitalisation and renewable energy during the COVID-19 crisis gives the confidence that the Indian economy can stage a strong comeback, Das said.

Moneycontrol News
first published: Apr 29, 2022 03:48 pm