“A feasible range for medium-term steady-state GDP growth in India works out to 6.5 – 8.5 per cent, consistent with the blueprint of reforms,” said the Report on Currency and Finance (RCF) for 2021-22.
The theme of the report is “Revive and Reconstruct” in the context of nurturing a durable recovery post-Covid and raising growth in the medium term.
The Reserve Bank, however, added that the report reflects the views of the contributors and not of the central bank.
“Timely rebalancing of monetary and fiscal policies will likely be the first step in this journey…price stability is a necessary precondition for strong and sustainable growth,” it said.
Reducing general government debt to below 66 per cent of GDP over the next five years is important to secure India’s medium-term growth prospects, according to the report prepared by officials of the RBI’s department of economic and policy research (DEPR).
The structural reforms suggested by the report include enhancing access to litigation free low-cost land; raising the quality of labour through public expenditure on education and health and the Skill India Mission; and scaling up R&D activities with an emphasis on innovation and technology.
It has also made a case for creating an enabling environment for startups and unicorns; rationalisation of subsidies that promote inefficiencies; and encouraging urban agglomerations by improving the housing and physical infrastructure.
The authors said industrial revolution 4.0 and committed transition to a net-zero emission target warrant a policy ecosystem that facilitates the provision of adequate access to risk capital and a globally competitive environment for doing business.
“India’s ongoing and future free trade agreement (FTA) negotiations may focus on the transfer of technology and better trade terms for high-quality imports from partner countries to improve the outlook for exports and domestic manufacturing,” they said.
The report further said a comprehensive plan is necessary to revive the rural economy.
Organising farmers’ clubs or agricultural cooperatives is a possible solution to correct the pricing imbalances by reducing gaps between farm gate prices and retail prices, it added.
“In this regard, the development of a modern supply chain infrastructure needs priority attention. There is a need to adopt a viable ‘whole of business’ approach covering all aspects of farming to break farmers’ dependence on money lenders,” it added.
Addressing structural constraints is central to reviving and reconstructing the Indian economy from the ravages of the pandemic, it added.
In the foreword of the report, RBI governor Shaktikanta Das said the resilience of certain sectors like agriculture and allied activities, information technology services, exports, digitalisation and renewable energy during the Covid-19 crisis give us the confidence that the Indian economy can stage a strong comeback.
“What adds to this confidence is the way certain other sectors used this crisis to rebuild and reconfigure,” he said.
These sectors would include the organised corporate sector; the financial sector; start-ups; and more recently, the manufacturing sector.
Around us too, the world is changing through rearranging of supply chains, geopolitical configurations and policy strategies to new global realities, including even a rethink on globalisation and financial integration, the governor said.