Price stability precondition for strong, sustainable growth: RBI report
According to a report from the Reserve Bank of India (RBI), price stability is vital for strong and sustainable economic growth. The report emphasizes the need for structural reforms to support a lasting recovery post-Covid. The Report on Currency and Finance (RCF) for 2021-22 states that a feasible range for India’s medium-term GDP growth is between 6.5% and 8.5%, aligning with the reform agenda. However, the RBI clarifies that the report reflects the contributors’ views and not necessarily those of the central bank. The report highlights the importance of timely balancing of monetary and fiscal policies to promote price stability, which is a precondition for robust growth.
To secure India’s medium-term growth prospects, the report prepared by officials of the RBI’s Department of Economic and Policy Research (DEPR) suggests reducing general government debt to below 66% of GDP over the next five years. The report also recommends various structural reforms, including enhancing access to affordable and litigation-free land, investing in education and healthcare to improve the quality of labor, and prioritizing research and development with a focus on innovation and technology.
Furthermore, the report advocates for creating a favorable environment for startups and unicorns, streamlining subsidies that create inefficiencies, and improving housing and physical infrastructure to foster urban agglomerations. The authors emphasize the need for policies that facilitate risk capital access and enable a globally competitive business environment in light of the industrial revolution 4.0 and the transition to a net-zero emission target.
Regarding trade agreements, the report suggests that India’s ongoing and future free trade agreement (FTA) negotiations should prioritize technology transfer and improved trade terms for high-quality imports to enhance export opportunities and domestic manufacturing.
The report also highlights the necessity of a comprehensive plan to revive the rural economy. It proposes organizing farmers’ clubs or agricultural cooperatives as a possible solution to address pricing imbalances and reduce gaps between farm gate and retail prices. The development of a modern supply chain infrastructure is deemed crucial, along with adopting a comprehensive approach to farming to decrease farmers’ dependence on money lenders.
Recognizing the impact of the Covid-19 pandemic, the report emphasizes the importance of addressing structural constraints to revive and rebuild the Indian economy. In the report’s foreword, RBI Governor Shaktikanta Das expresses confidence in the Indian economy’s ability to bounce back, citing the resilience of sectors such as agriculture, IT services, exports, digitalization, and renewable energy. Certain sectors, including organized corporates, financial institutions, startups, and manufacturing, have also seized the crisis as an opportunity to rebuild and reconfigure.
Governor Das further acknowledges that the world is experiencing changes in supply chains, geopolitical configurations, and policy strategies, prompting a reassessment of globalization and financial integration.
