Economy recovery possible at fast pace with these two fronts – Check what RBI said in its Annual Report

The soonest revival in private consumption and investment demand, which constitutes 85 per cent of GDP (growth domestic product), would help in the recovery of the economy in India, the Reserve Bank (RBI) on Thursday said in its annual report of 2020-2021.  

RBI, however, being optimistic about the economy said in a report, “The recovery of the economy from the COVID-19 will critically depend on the robust revival of private demand that may be led by the consumption in the short-run but will require acceleration of investment to sustain the recovery.” 

India’s economy during the second wave has not moderated to the extent as it did during the first wave of Covid-19, said the central bank, however, it added the uncertainties still prevail and can act as a deterrent in the short term. 

RBI in its forward-looking outlook said, “The economic recovery is essentially dependent on how fast the country can arrest the second wave of Covid-19 Infections.” India on Wednesday reported over 2 lakh fresh cases and over 3000 deaths in the last 24 hours.  

The stress tests indicate that Indian banks have sufficient capital at the aggregate level even in a severe stress scenario, says RBI. “Bank-wise as well as system-wide supervisory stress testing provides clues for a forward-looking identification of vulnerable areas.” 

Quoting it as unprecedented in Independent India's history, the central bank in its report pointed out, "The contraction in the services sector in 2020-21 is unprecedented in independent India's history. Even during the global financial crisis, the services sector remained resilient.” 

The situation was exacerbated by imposed social distancing norms which led to construction activity in the first quarter of 2020-21 getting reduced by half year-on-year, the central bank noted. 

In 2020-21, construction suffered in the aftermath of the pandemic due to an inventory overhang in residential housing, coupled with stressed liquidity conditions, which restricted new launches, said RBI.