RBI Report on Currency and Finance

Recently, the Reserve Bank of India (RBI) released the Report on Currency and Finance (RCF) for the year 2021-22.

What is the theme of the report?

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.

What is the impact of the covid pandemic on the economy according to the report?

  • According to the report, the Indian economy is likely to take over 12 years to overcome the COVID-19 losses.
  • Taking the actual growth rate of (-) 6.6% for 2020-21, 8.9% for 2021-22, and assuming a growth rate of 7.2% for 2022-23, and 7.5% beyond that, India is expected to overcome COVID-19 losses in 2034-35.
  • The supply constraints and longer delivery times pushed up shipping costs, and commodity prices, thereby intensifying inflationary pressures and threatening the nascent economic recovery across the world.

What are the factors that contribute to the economic growth of India?

  1. Sustained thrust on capital expenditure by the government.
  2. Push to digitalization.
  3. Growing opportunities for new investment in areas like e-commerce, start-ups, renewable, and supply chain logistics.

On what themes did the report suggest the reforms?

Reforms proposed in the report revolve around seven wheels of economic progress:

  1. Aggregate demand.
  2. Aggregate supply.
  3. Institutions, intermediaries, and markets.
  4. Macroeconomic stability and policy coordination.
  5. Productivity and technological progress.
  6. Structural change.
  7. Sustainability.

What are the structural reforms suggested?

Suggested structural reforms include:

  • Enhancing access to litigation-free low- cost land.
  • Raising the quality of labor 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.
  • Rationalisation of subsidies that promote inefficiencies.
  • Encouraging urban agglomerations by improving the housing and physical infrastructure.

What are the other observations of the report?

  • The report states that for the country to hop on to a strong and sustainable growth path, price stability is a necessary precondition.
  • Reducing general government debt to below 66% of GDP over the next five years is important to secure India’s medium-term growth prospects.
  • The report emphasized providing opportunities for entrepreneurs and businesses.
  • India’s free trade agreement (FTA) negotiations should focus on the transfer of technology and better trade terms for high-quality imports from partner countries.
  • The report says that the task is to create a virtuous cycle of greater opportunity for entrepreneurs, businesses, and the fiscal authority.

What did the report say regarding the banking sector?

  • Public Sector banks should not be dependent on the government for recapitalization.
  • Reducing dependence on government recapitalization will be an important pre-condition to achieve greater privatization of the sector.

What is the projected growth of the Indian economy?

While the RBI expects the Indian economy to grow at 6.35 in FY24, the International Monetary Fund’s (IMF’s) latest World Economic Outlook (WEO) report pegged India’s growth rate for FY24 at 6.9%.

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