Post-pandemic: Economic recovery is underway, says RBI
Virendra Pandit
New Delhi: The Reserve Bank of India (RBI), on Friday, said the post-pandemic economic recovery in the country is underway, despite headwinds.
In its annual report for 2021-22, released on Friday, it said the central bank would follow a nuanced approach in the wake of inflation risks emanating from high commodity prices while ensuring adequate liquidity in the banking system to support the need for the productive sectors of the economy.
“… the year went by brought many challenges, but a recovery is underway despite headwinds. The future path of growth will be conditioned by addressing supply-side bottlenecks, calibrating monetary policy to bring inflation within the target while supporting growth, and targeted fiscal policy support to aggregate demand, especially by boosting capital spending,” the report said.
The report highlighted the immediate impact of geopolitical aftershocks on inflation, with close to three-fourths of the consumer price index at risk.
“The elevation in international prices of crude, metals, and fertilizers has translated into a term of trade shock that has widened trade and current account deficits,” it said.
As the geopolitical situation worsened after the Russian invasion of Ukraine, the central bank changed its focus on controlling inflation. Over the last two years, since the onset of the Covid-19 pandemic, the RBI’s main aim was to support growth. Earlier this month, its six-member Monetary Policy Committee increased the repo rate–for the first time in 4 years–by 40 bps to 4.4 percent.
“Overall, headline inflation averaged 5.5 percent in 2021-22 as against 6.2 percent a year ago. Headline inflation breached the upper tolerance band in Q4:2021-22 and rendered the conduct of monetary policy challenging.”
During the year, an amount of Rs 2.2 trillion was withdrawn from the system through the restoration of the cash-reserve ratio (CRR) to pre-pandemic levels, repayment of targeted long-term repo operations (TLTRO), and open market operations (OMO) sales, it said.
“The Reserve Bank will continue to follow a nuanced and nimble-footed approach to liquidity management while maintaining adequate liquidity in the system to meet the credit needs of the productive sectors of the economy,” the report said.
It observed that early indicators point to the revival of economic activity across other sectors that need to be assiduously nurtured to boost consumer and business confidence and private investment.
“Capacity utilization in several industries is moving closer to normal levels, although rising input costs and persisting supply bottlenecks, for instance in semiconductors for the automobile sector, may impede or delay a fuller recovery,” it said.
Commenting on banking, the report observed the sector was cushioned against the disruptions caused by the pandemic by adequate liquidity support and various regulatory dispensations provided by the central bank.
Banks bolstered their capital to augment risk absorbing capacity, aided by recapitalization by the government of public sector banks (PSBs) along with capital raising from the market and retention of profits by both PSBs and private sector banks.
“The gross non-performing assets (GNPA) ratio of all scheduled commercial banks (SCBs) moderated to its lowest level in six years, aided by due efforts towards recoveries and technical write-offs. Bank credit growth has picked up to track nominal GDP growth and banks are regaining bottom lines,” it said.
