Economy

RBI says lack of domestic demand affecting ‘animal spirits’ of economy

Logo of Reserve Bank of India (RBI) at its headquarters in Mumbai.

Logo of Reserve Bank of India (RBI) at its headquarters in Mumbai.   | Photo Credit: PAUL NORONHA

Reviving the consumption demand and private investment has assumed the highest priority in 2019-20, notes central bank report.

The Reserve Bank of India (RBI), in its annual report for 2018-19, has said the lack of domestic demand is holding back the animal spirits in the economy and emphasised the need to revive consumption demand and private investment during 2019-20. 

“What ails the animal spirits? At the core is the issue of domestic demand,” the RBI said in the annual report.

The report said the recent deceleration could be in the nature of a soft patch mutating into a cyclical downswing, rather than a deep structural slowdown.

“Nonetheless, there are still structural issues in land, labour, agricultural marketing and the like, which need to be addressed,” the report said, adding that the policy focus at this point should remain on improving ease of doing business.

The RBI stressed on continued focus on reforms in factors of production, faster implementation of capital expenditure by public authorities, among others.

While the central bank’s analysis confirms that a broadbased cyclical downturn is underway in several sectors like manufacturing, trade, hotels, transport, communication and broadcasting, construction; and agriculture, it added that the growth trend has witnessed slight moderation since 2016-17, contributed mainly by the services sector.

 

The central bank said reviving consumption demand and private investment has assumed the highest priority in 2019-20. This involves strengthening the banking and non-banking sectors, a big push for spending on infrastructure and implementation of much needed structural reforms in the areas of labour laws, taxation, and other legal reforms.

All these measures will also enhance ease of doing business in pursuit of fulfilling the vision of India becoming a $5 trillion economy by 2024-25, the RBI said.

On the financial sector, the banking regulator said several measures had resulted in a decline in gross non-performing assets (GNPA) ratio of the banking system to 9.1% at end-March 2019, from 11.2% in the previous year, apart from a decline in fresh slippages and an improvement in provision coverage ratio.

 

”The abatement of stress has rekindled bank credit flows, which are getting broad-based,” the report said.

The bankruptcy code is turning out to be a game changer for banks in resolving stressed assets, RBI said.

“After initial, teething difficulties, the insolvency and bankruptcy code is proving to be a game changer: recoveries have gradually improved and as a result, deadlocks in the potential path of the investment cycle are easing,” the report said. 

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Printable version | Jul 1, 2020 3:57:15 PM | https://www.thehindu.com/business/Economy/rbi-says-lack-of-domestic-demand-affecting-animal-spirits-of-economy/article29289701.ece

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