Home / Economy / GDP can grow at 6.5-8.5%, need to reduce debt: RBI
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MUMBAI : The recovery in economic activity in India remains “stimulus-dependent", the Reserve Bank of India said in its annual currency and finance report, at a time new risks to growth and inflation have emerged from the war in Ukraine and monetary policy normalization in the US. In the report themed Revive and Reconstruct, RBI said the Indian economy can sustain a medium-term, steady-state GDP growth of 6.5-8.5%, consistent with reforms blueprint.

A timely rebalancing of monetary and fiscal policies is needed, and it is the first step to restore and recreate a policy environment conducive to a private sector-led growth post covid, the report said. Next would be a transparent medium-term strategy of debt consolidation aimed at reducing general government debt to below 66% of GDP at the earliest, to secure the medium-term growth prospects of India.

“The debt path over the next five years, even under the best-case scenario, may further squeeze fiscal space unless strategic policy efforts covering both taxes and expenditure aim at targeted consolidation," the report said. The report also hinted at a possible slowing of India’s trend growth.

Corporate balance sheets have tackled the pandemic shock by deleveraging and increasing liquid assets, but investment appetite that should power a renewed capex cycle is still weak. Frail household balance sheets and labour displaced from contact-intensive activity have impacted consumption demand. As a result, the trend growth path of India may have shifted downwards, and urgent measures are required to reverse this, it said.

The report also suggested structural reforms, including enhancing access to litigation-free, low-cost land, and raising the quality of labour through public expenditure on education and health.

Also, scaling up research and development activities with an emphasis on innovation and technology, creating an enabling environment for startups and unicorns and encouraging urban agglomerations by improving the housing and physical infrastructure will be key, the report said.

“Industrial Revolution 4.0 and committed transition to a net-zero emission target warrant a policy ecosystem that facilitates adequate access to risk capital and a globally competitive environment for doing business," the report said.

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