Addressing supply-side bottlenecks, capital spending key to improve GDP growth: RBI
May 27, 2022
Mumbai (Maharashtra) [India], May 27 : India's economic growth recovery has lost some momentum due to the Russia-Ukraine conflict and performance in the near future will depend on the reform measures like addressing the supply-side bottlenecks to control inflation and capital spending, the Reserve Bank of India (RBI) said in its annual report for 2021-22 released on Friday.
"The future path of growth will be conditioned by addressing supply-side bottlenecks, calibrating monetary policy to bring inflation within the target while supporting growth and targeted fiscal policy support to aggregate demand, especially by boosting capital spending," RBI said.
"Undertaking structural reforms to improve India's medium-term growth potential holds the key to secure sustained, balanced and inclusive growth, especially by helping workers adapt to the after-effects of the pandemic by reskilling and enabling them to adopt new technologies for raising productivity," the central bank noted in the report.
However, the central bank said that the Indian economy is witnessing a recovery despite the multiple headwinds in the previous year. "The year gone by brought many challenges, but a recovery is underway in spite of headwinds."
The report noted that the escalation of geopolitical tensions into war from late February 2022 has delivered a brutal blow to the world economy, battered as it has been through 2021 by multiple waves of the pandemic, supply chain and logistics disruptions, elevated inflation and bouts of financial market turbulence, triggered by diverging paths of monetary policy normalisation.
The global macroeconomic outlook is overcast with the economic costs of the war and sanctions.
On the impact of the Russia-Ukraine conflict on India's economy, the RBI said the immediate impact of geopolitical aftershocks is on inflation, with close to three-fourths of the consumer price index at risk.
The elevation in international prices of crude, metals, and fertilisers has translated into a terms of trade shock that has widened trade and current account deficits.
"High-frequency indicators already point to some loss of momentum in the recovery that has been gaining traction from the second quarter of 2021-22, with 86.8 per cent of the adult population fully vaccinated and 3.5 per cent having received booster doses," the RBI said.
