Indian economy could grow by 6.5-8.5% in the medium term, says RBI

The Indian economy can sustain GDP growth of 6.5-8.5% in the medium term, depending on a series of reforms, the Reserve Bank of India said in its annual ‘Revive and Reconstruct’ theme.

The central bank acknowledged that economic activity has barely reached pre-pandemic levels as it faces challenges from the legacy of deep-rooted structural bottlenecks as well as the scars of the pandemic. The conflict between Russia and Ukraine has also dampened the momentum of the recovery, and its impact is being transmitted through record high commodity prices, weaker global growth prospects and tighter global financial conditions, the central bank said.

Fragile household balances and labor force displaced from contact-intensive activity have affected consumption demand. As a result, the trend growth path in India may have shifted downwards, the report states.

As such, India’s medium – term growth prospects are critically dependent on policy measures to address structural bottlenecks and exploit new growth opportunities.

A timely rebalancing of monetary and fiscal policy is necessary and is the first step towards a stable state of growth, the central bank said. It added that price stability is a necessary precondition for strong and sustainable growth.

The RBI also called for reducing government debt to below 66% of GDP over the next five years to ensure India’s medium-term growth prospects.

The report proposed a series of next-generation reforms to help India achieve a higher level of sustainable growth.

These include:

  • Improving access to free, low-cost land through litigation.

  • Raise the quality of labor through public spending on education and health and the Skill India Mission.

  • Upscaling of R&D activities with emphasis on innovation and technology.

  • Creating an enabling environment for startups and unicorns.

  • Rationalization of subsidies that promote inefficiency.

  • Encouraging urban areas by improving housing and physical infrastructure.

The report also said that an Industrial Revolution 4.0 and a committed transition to a net zero-emission target justify a political ecosystem that facilitates adequate access to venture capital and a globally competitive environment to conduct business.

Leave a Reply

Your email address will not be published.