As India undergoes a phase of a severe economic meltdown, the Reserve Bank of India said that deep-seated and wide-ranging structural reforms are the need of the hour to regain the economic momentum.
As India undergoes a phase of a severe economic meltdown, the Reserve Bank of India said that deep-seated and wide-ranging structural reforms are the need of the hour to regain the economic momentum. RBI’s annual report released today suggested that structural reforms are needed in factor and product markets, the financial sector, legal architecture, and international competitiveness to offset the potential output losses and return the economy to a path of strong and sustainable growth. However, it underlined that the shape of the future is heavily contingent upon the evolving intensity, spread, and duration of Covid-19 and the discovery of the elusive vaccine.
Along with the rest of the world, “India’s potential output can undergo a structural downshift as the recovery driven by stimulus and regulatory easing gets unwound in a post-pandemic scenario,” the central bank said. It also said that the recovery is expected to be different this time as the global financial crisis (GFC) in 2008-09 was a financial crisis while coronavirus is a health crisis.
Further, GFC occurred after years of robust growth with macroeconomic stability while on the other hand, coronavirus has hit the economy after consecutive quarters of slowdown. The coronavirus pandemic comes close to the heel of an economic slowdown that claimed growth of various sectors such as FMCG and automobile with it. The FMCG sector had just started to witness green shoots of revival when the coronavirus hit Indian shores in March.
India’s economy had already started to slow down over the last year. In the year ended March 2020, India’s GDP growth slid to 4.2%, versus 6.9% in the previous year. The growth last financial year was the lowest in the past 11 years. With coronavirus pandemic aggravating slowdown, this year ending March 2021, the GDP is expected to contract 4.5%.
Meanwhile, the government had announced a slew of liquidity measures among other social welfare schemes such as free foodgrain to help people tide over the pandemic and fuel demand.