RBI’s bleak report

The green shoots of an economic turnaround are turning pale, going by the RBI’s annual report for 2019-20. The report, which comes at a time when India is deep in the throes of the Covid-19 pandemic, observes that consumption has been hit hard and it will take the economy ‘quite some time’ to get back on track. The reimposition of the lockdown by several states in July-August has been cited as a major reason for the contraction in economic activity. The prevailing uncertainty has forced people to play it safe and cut down on expenditure, wherever possible. The state of affairs is summed up by the fact that 40 per cent of the cash transferred by the government in recent months has not been spent by the beneficiaries. When crores of consumers become penny-pinchers, growth is bound to take a beating.

Another worrying trend is that the corporate tax cut, announced in September 2019, has been utilised by companies primarily for debt servicing and build-up of cash balances. This considerable relief was aimed at boosting investment, demand and capital expenditure, but the purpose largely stands defeated. The RBI has stressed on targeted public investment through asset monetisation and privatisation of major ports. The onus is on the Central and state governments to proactively play the part of enabler and facilitator, even as the investors need to become less risk-averse.

The continued disruption of global supply chains has prompted India to take stock of its domestic manufacturing sector and look for opportunities to cash in on the anti-China sentiment in the West. But much will depend on how India handles the health crisis in the coming months. The government just can’t keep waiting for the Covid peak or herd immunity to arrive. Effective containment measures that don’t take a toll on livelihoods — along with the development of a potent vaccine — have to be put in place quickly so as to restore consumer confidence. The sooner the fear of infection subsides, the faster demand will return to pre-Covid levels. For that, everybody has to chip in, right from the common man to the corporates.