RBI REPORT ON CURRENCY AND FINANCE

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Context

Recently the RBI Report on Currency and Finance (RCF) for the year 2021-22 was released.

Details

The theme of the Report is "Revive and Reconstruct" in the context of nurturing a durable recovery post-COVID and raising trend growth in the medium-term.

Observations made by the Report

Recovery from Pandemic

India is likely to take another 13 years to overcome the losses incurred due to the Covid pandemic that hit the country in March 2020.
India is expected to overcome Covid-19 losses in 2034-35, according to the RBI’s Report on currency and Finance in 2021-22.
The output losses for individual years have been worked out to Rs 19.1 lakh crore, Rs 17.1 lakh crore and Rs 16.4 lakh crore for 2020- 21, 2021-22 and 2022-23, respectively.

Russia-Ukraine conflict

With the ongoing Russia-Ukraine conflict, the downward risks to global and domestic growth are getting accentuated through surge in commodity prices and global supply chain disruptions.
The supply constraints and longer delivery times pushed up shipping costs, commodity prices.
This thereby led to intensifying of inflationary pressures and threatening the nascent economic recovery across the world.
India too felt the pressure from the global supply chain disruptions with the supplier’s delivery time falling to its lowest point of 29.5 in April 2020.

Suggestions made by the Report

Wheels of Economic Progress

The blueprint of reforms proposed in the Report revolves around seven wheels of economic progress viz.,

GDP growth

A feasible range for medium-term steady state GDP growth in India works out to 6.5 – 8.5 per cent, is consistent with the blueprint of reforms.

Fiscal Policies

Timely rebalancing of monetary and fiscal policies will likely be the first step in this journey of recovery.
Price stability is a necessary precondition for strong and sustainable growth.

Government Debt

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.

Structural Reforms

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;
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; and
Encouraging urban agglomerations by improving the housing and physical infrastructure.

Industrial revolution 4.0

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.

Free Trade Agreement

India’s ongoing and future free trade agreement (FTA) negotiations should focus on transfer of technology and better trade terms for high quality imports from partner countries.
This will improve the outlook for exports and domestic manufacturing.

PSU banks

PSU banks should not be dependent on the government for recapitalization. In the medium term, it is necessary to wean away PSBs from their dependence on government recapitalization.
This will be an important pre-condition to achieve greater privatization of the sector.

RBI’s ‘on tap’ Licensing Policy

To increase the competition in the banking sector and to introduce innovation, the RBI’s ‘on tap’ licensing policy for universal and small finance banks should be used effectively.
However, capital infusion should not become a substitute for better governance and risk controls.