rbi: Reduce public debt to support growth, says RBI report

The Reserve Bank of India (RBI) has suggested that the government reduce its debt to 66% of gross domestic product (GDP) over the next five years to secure India’s medium-term growth prospects.

India’s debt reduction is important, especially since monetary policy tends to prioritize price stability and output stabilization. In an annual currency and finance report whose theme was post-Covid recovery and reconstruction, the central bank said that government reforms such as privatization and monetization of assets, streamlining of GST and corporate tax, targeted sectoral incentives to increase production, exports under production – the linked incentive regime (PLI) and the insolvency and bankruptcy code (IBC) must be complemented by other measures to reverse the sustained decline in private investment and the low productivity of the economy.

“What is needed is access to low-cost land without litigation; improving the quality of labor through a large-scale expansion of public spending on education, health and the Skill India mission; reducing the cost of capital for industry and improving the allocation of resources in the economy by promoting competition; encouraging industries and companies to intensify their R&D activities by emphasizing innovation and technology; creating an enabling environment for start-ups and unicorns; encouraging business investment in agriculture; addressing the challenges facing the indebted telecommunications industry and DISCOMs rationalizing subsidies that promote inefficiencies; encouraging urban agglomerations by improving housing and physical infrastructure,” the report said.

A three-member team consisting of Sarat Chandra Dhal, Debojyoti Mazumder and Saurabh Sharma worked on two scenario analyzes of medium-term growth rates and predicted a steady-state growth range of between 6.5% and 8 .6%. Certainly, the report is prepared by the RBI research team and the recommendations should not be construed as those of the RBI. Timely rebalancing of monetary and fiscal policies will be the first step to achieving a steady state of growth, according to the report. “First, the large excess liquidity needs to be removed – every one percentage point increase in excess liquidity above 1.5% NDTL causes average inflation to rise by 60 basis points. in one year. Monetary policy should prioritize price stability as the nominal anchor for the future growth path,” the report states.

The report calls for a comprehensive plan to revive the rural economy. “The organization of farmers’ clubs or agricultural cooperatives is a possible solution to correct price imbalances by reducing the gaps between farm gate and retail prices. In this regard, the development of a modern supply chain requires priority attention.

There is a need for a viable ‘holiday’ approach covering all aspects of farming to break farmers’ reliance on lenders,” he said. Stronger growth and improved income and employment prospects are key to increasing household savings. As demand picks up on the back of policy stimulus, building the capacity of the financial system to propel stronger and more inclusive growth must be a priority, the report says. generate a virtuous circle of greater opportunities for entrepreneurs to innovate and invest and for businesses to attract more capital and technology and fiscal space to manage the distributional effects of the pandemic while increasing investment public in physical infrastructure and human capital. “The resilience of certain sectors like agriculture and related activities, IT services, exports, digitalization and renewable energy during the COVID-19 crisis gives us confidence that the Indian economy can perform a comeback. strength,” Das said.

There is a need to wean public sector banks from reliance on government for recapitalization, the report says while noting that big banks are also raising resources in the market. Going forward, the growing reliance of the economy on the digital ecosystem will help harness the benefits of low-cost resource allocation and distributive efficiency. “Care must be taken, however, to protect stakeholders from digital fraud, data breaches and digital oligopolies. Recognizing the significantly changed funding needs of start-ups and unicorns, a policy framework for attracting venture capital must be set up Given the large long-term funding needs of the infrastructure sector, NaBFID may need to expand rapidly and explore ways to attract resources from insurance, pensions and provident funds,” says The report.

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