India is on course to be among the fastest growing economies of the world, but there is far to go, according to Reserve Bank of India (RBI) Deputy Governor Michael Debabrata Patra.

“Private consumption and investment are still work in progress. The restoration of livelihoods and the revival of MSMEs (micro, small and medium enterprises) is a formidable task that lies ahead.

“The RBI remains committed to revive and sustain growth on a durable basis and continue to mitigate the impact of Covid-19 on the economy, while ensuring that inflation remains within the target going forward,” Patra said.

In his keynote address ‘RBI’s Pandemic Response: Stepping out of Oblivion’ at the C D Deshmukh Memorial Lecture (organised by the Council for Social Development, Hyderabad), the deputy governor noted that the second wave dented the recovery in the first quarter of 2021-22, but its impact turned out to be relatively less severe.

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“The Indian economy renewed its tryst with the interrupted recovery, which gained strength and pace through the rest of the year.

“It is estimated that real GDP will rise by 9.2 per cent during the current financial year, cresting pre-pandemic levels, and marking a turnaround from the decline of 7.3 per cent the year before,” Patra said.

Exports have been the silver lining, growing by 49.7 per cent year-on-year in US dollars terms during April-December 2021 at a time when international trade has been hamstrung by supply chain disruptions, shortages and logistics impairments.

Import demand has surged on the back of the return of domestic demand to normal conditions.

“Employment has yet to recover fully though, and labour participation remains low. Bank credit has begun to gain pace, helped by easing of stress in banks’ balance sheets.

“Inflation has eased from pandemic highs to more tolerable levels in recent months, although it remains elevated amidst high commodity prices, including of crude,” Patra said.

RBI charting a different course

In a situation in which several EMEs (emerging market economies) were jumping on to the bandwagon of tightening monetary policy and AEs (advanced economies) were announcing normalisation or joining their EMEs in raising policy rates, Patra underscored that India held its ground and is among a few countries that have retained an accommodative monetary policy, despite some views that we have fallen behind the curve.

“Only time will tell whether or not India has got it right but so far, this approach has served us well and helped in charting a course into the future which is different from the world,” he said.

RBI’s pandemic response

The deputy governor emphasised that the pandemic continues to shape the future, but the RBI remains armed and battle ready.

“Continuously evaluating highly volatile and uncertain conditions and remaining prepared to protect the economy from shocks, the RBI has committed all its instruments to this objective, using conventional measures and fashioning new ones, as the pandemic experience showed.

“The lessons of the pandemic will be imbibed and the RBI will emerge stronger and more resilient than before, and committed to its mandate of price stability, keeping in mind the objective of growth,” Patra said.

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