Art – 1.

4 Revival of pvt
consumption, investment key
for post-Covid growth: RBI
The Reserve Bank on Thursday said that a durable revival of private consumption and
investment would be critical

Amid uncertainties arising out of the second wave of COVID-19, the Reserve Bank on
Thursday said that a durable revival of private consumption and investment would
be critical for sustaining economic growth post-pandemic.

Observing that 2020-21 has left a scar on the economy, RBI in its annual report said,
"in the midst of the second wave as 2021-22 commences, pervasive despair is being
lifted by cautious optimism built up by vaccination drives."

The second wave of the pandemic has prompted revision of growth projections for
the current fiscal and the consensus appears to be gravitating towards RBI's
forecast of 10.5 per cent, the report added.

The pandemic, RBI cautioned, "is the biggest risk to this outlook. Yet, upsides also
stem from the capex push by the government, rising capacity utilisation and the
turnaround in capital goods imports."

In a separate box on what would drive growth recovery after the crisis, RBI said, "for
a self-sustaining GDP growth trajectory post-COVID-19, a durable revival in private
consumption and investment demand together would be critical as they account for
around 85 per cent of GDP."

Typically, it added, post-crisis recoveries are led more by consumption than

investment.

"However, investment-led recoveries can be more sustainable and can also lift
consumption in parts by better job creation. In either case, private demand plays a
pivotal role," the report added.

The RBI has also cautioned banks to closely monitor their bad loans and prepared
themselves for higher provisioning in the light of the Supreme Court lifting ban on
non-performing asset (NPA) classification and outbreak of the second COVID-19
wave.

The waiver of compound interest on all loan accounts which opted for moratorium
during March-August 2020 may put stress on the financial health of banks, the
report said.

The apex bank, however, expressed confidence that banks are better positioned
than before in managing stress in balance sheets in view of higher capital buffers,
improvement in recoveries and a return to profitability.

"Stress tests indicate that Indian banks have sufficient capital at the aggregate level
even in a severe stress scenario. Bank-wise as well as system-wide supervisory
stress testing provide clues for a forward-looking identification of vulnerable areas,"
RBI said in its annual report 2020-21.

The report has emphasised the need for banks to keep a tab on the NPAs and
accordingly earmark capital for the provision.

The report also revealed that the banknotes in circulation witnessed higher than
average increase during 2020-21 on account of precautionary holding of cash by
people induced by COVID-19 pandemic.

The value and volume of banknotes in circulation increased by 16.8 per cent and 7.2
per cent, respectively, during 2020-21 as against an increase of 14.7 per cent and 6.6
per cent, respectively, witnessed during 2019-20, said the RBI annual report.

In value terms, the share of Rs 500 and Rs 2,000 banknotes together accounted for
85.7 per cent of the total value of banknotes in circulation as on March 31, 2021, as
against 83.4 per cent as on March 31, 2020.

On inflation, the report said supply-demand imbalances may continue to exert

pressure on food items like pulses and edible oils, prices of cereals may soften with
bumper food grain production in 2020-21. As per the report, conduct of the RBI's
monetary policy in 2021-22 would be guided by evolving macroeconomic conditions,
with a bias to remain supportive of growth till it gains traction on a durable basis
while ensuring inflation remains within the target.

Which are the factors that can push growth? Discuss the factors that need to
be taken care of in the process.