RBI Releases Report on Currency and Finance for FY2021-22

Report on Currency and Finance for FY2021-22: Relevance

• GS 3: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

RBI report on currency and finance: Context

• In the recently released report on ‘Currency and Finance for the Year 2021-22’, RBI said that Indian economy is likely to take over 12 years to overcome the COVID-19 losses.

आरबीआई ने वित्त वर्ष 2021-22 के लिए मुद्रा एवं वित्त पर रिपोर्ट जारी की

Report on Currency and Finance for FY2021-22: Key points

• The theme of the report is “Revive and Reconstruct” in the context of nurturing a durable recovery post-COVID and raising trend growth in the medium-term.
• The report has acknowledged that the pandemic is a watershed moment and the ongoing structural changes catalysed by the pandemic can potentially alter the growth trajectory in the medium-term.
• The report noted that the pandemic is not yet over. A fresh wave of COVID has hit China, South Korea and several parts of Europe. However, various economies are reacting divergently ranging from a no-COVID policy in some jurisdictions (eg, China, Hong Kong and Bhutan) on the one hand to those with relatively open borders and removal of internal restrictions (eg, Denmark and the UK).

Report on Currency and Finance for FY2021-22: Key findings

• Price stability: According to the report, price stability is a necessary precondition for strong and sustainable growth besides proposing a seven-point blueprint for reforms.
• GDP: The report has also said that a feasible range for medium-term steady-state GDP growth in India works out to 6.5 – 8.5 percent, consistent with the blueprint of reforms.
• Monetary policy: In the report RBI said that to achieve sustainable growth, timely rebalancing of monetary and fiscal policies will likely be the first step in this journey.
• Government debt: Moreover, adding reducing general government debt to below 66 per cent of GDP over the next five years is important to secure India’s medium-term growth prospects.
• Banks: The report stressed on the need for state-run banks to reduce their dependence on the government for recapitalization.
• Entrepreneurship: The economy should generate a climate for entrepreneurs to innovate and invest, and adding businesses should be able to attract more capital and technology.

Report on Currency and Finance for FY2021-22: Recommendations

• The blueprint of reforms proposed in the report revolves around seven wheels of economic progress viz, aggregate demand; aggregate supply; institutions, intermediaries and markets; macroeconomic stability and policy coordination; productivity and technological progress; structural change; and sustainability.
• The report has suggested structural reforms including enhancing access to litigation free low-cost land; raising the quality of labour through public expenditure on education and health and the skill India mission.
• Scaling up research and development activities with an emphasis on innovation and technology, creating an enabling environment for start-ups and unicorns, rationalisation of subsidies that promote inefficiencies, and encouraging urban agglomerations by improving the housing and physical infrastructure.
• Sustained thrust on capital expenditure by the government, push to digitalisation and growing opportunities for new investment in areas like e-commerce, start-ups, renewables and supply chain logistics could in turn, contribute to step up the trend growth while closing the formal-informal gap in the economy.

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