Economic recovery depends on arresting Covid, reviving private demand: RBI
May 27, 2021
Mumbai (Maharashtra) [India], May 27 : Economic growth prospects essentially depend on how fast the country can arrest second wave of Covid-19 pandemic, the Reserve Bank of India (RBI) said on Thursday.
While the economy has not moderated to the extent during first wave, surrounding uncertainties can act as a deterrent in the immediate period, it said in the annual report for 2020-21.
"The recovery of economy from Covid-19 will critically depend on robust revival of private demand that may be led by consumption in short-run but will require acceleration of investment to sustain the recovery," said the report.
It added that reform measures in various areas are likely to improve growth potential on a sustainable basis.
The prospects for economy though impacted by second wave remain resilient backed by prospects of another bumper rabi crop, gathering momentum of activity in several sectors, especially housing and road construction, and services activity in construction, freight transportation and information technology.
The RBI report said equity markets in particular have recovered exuberantly from the panic that set in when Covid-19 was declared a pandemic in March last year.
However, the unabated surge in domestic equities and asset price inflation despite economic contraction poses risk of a bubble, it added.
Significantly, the report said that stress tests indicate banks have sufficient capital at aggregate level even in a severe stress scenario.
Bank-wise as well as system-wide supervisory stress testing provide clues for a forward-looking identification of vulnerable areas.
The RBI said it will ensure that system level liquidity will remain comfortable during 2021-22 in alignment with the stance of monetary policy, and monetary transmission continues unimpeded while maintaining financial stability.
Overall, the total support announced by RBI from February 6, 2020 up to May 5, 2021 amounts to Rs 15.7 lakh crore or 8 per cent of 2020-21 nominal GDP.
