Indian economy will take longer to recover: RBI
Published On: Tuesday, August 25, 2020 | By: Team KnowMyStock
stimulus measures once the cure to Covid-19 is found, the report adds. High-frequency indicators so far pointed to a “retrenchment in activity that is unprecedented in history,” the annual report said, adding, “the improvements that became visible in May and June after the lockdown was eased in several parts of the country, appear to have lost strength in July and August, mainly due to reimposition or stricter imposition of lockdowns, suggesting that contraction in economic activity will likely prolong into the second quarter.” The central bank noted that the shock to consumption is severe, and it will take quite some time to mend and regain the pre-pandemic momentum.
Public finances have stretched to fight the pandemic, and supporting demand led activities would be severely diminished. “In the case of state finances, space is likely to be squeezed so much that cuts in growth-giving capital expenditure seem quite probable.” The future path of fiscal policy is likely to be heavily conditioned by the large overhang of debt and contingent liabilities incurred during the pandemic.
“A credible consolidation plan, specifying actionables for reduction of debt and deficit levels, will earn confidence and acceptability, rather than just extending the path of touchdown,” the report said.
The RBI suggested the government must use big data and technology to track and identify tax defaulters, increase the tax payer base by tracking their income and wealth parameters, and by addressing the challenges confronting the GST regime through rationalisation, and simplification. Employment generation should be the focus and fiscal incentives can be given to productive labour-intensive companies.
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