RBI Guv wants banks to be investment-ready as recovery gathers momentum

Reserve Bank Governor Shaktikanta Das on Tuesday asked banks to be investment-ready when the private Capex cycle picks up, as the pandemic-battered economy is on a strong recovery path that will demand huge investments to sustain in the long run.

Crediting the faster-than-expected recovery primarily to the improved vaccination pace and the resultant steady fall in the infection caseload, Das said this has led not only to lower extreme health outcomes like mortality/ hospitalisation but also boosted consumer confidence, which was visible in the festival demand.

Addressing a State Bank event in the city this evening -- which he dubbed as the first one after the March 2020 lockdowns -- Das said it is heartening to note that the economy is gradually getting back on its feet after the devastating second wave, which is very visible from the numerous high-frequency indicators that suggest that economic recovery is taking hold.

Since contact-intensive services are yet to regain the lost capacity despite rapid improvement in the recent period, it is clear that there still exists a significant gap in private consumption and investment relative to their pre-pandemic levels in FY20.

So, while the economy is picking up pace, it is yet to cover a lot of ground before it gets broad-based and entrenched. This points to the need for sustained impetus so that growth could return to or, better still, exceed the pre-pandemic trend, he said.

Stating that the country has the potential to grow at a reasonably high pace after the pandemic,

Das pointed to the several factors that are stacked in our favour of faster growth.

First, as a developing economy, it has significant potential to catch up with the rest of the world supported by favourable demographics, improving skill base and strong domestic demand.

Secondly, the government is providing necessary support, especially through Capex and reforms in various sectors like infrastructure, manufacturing and telecom, apart from other institutional changes to boost productivity, ease supply constraints and improve the business environment.

Thirdly, he said the pandemic has opened new opportunities for growth in the digital and green technology and also on account of resetting of global supply chains that could be advantageous to us and finally exports have been a bright spot since recent months and are likely to benefit further from global economic recovery.

With such enabling conditions and supportive policies, I have no doubt that we have a unique opportunity to step up growth as we emerge from the pandemic, Das said.

Calling private consumption as the backbone of overall economic growth, he said private consumption contributes the largest share of aggregate demand with around 56 per cent of GDP and is thus critical for inclusive, durable and balanced growth.

There are many signs that consumption demand triggered by the festive season is making a strong comeback. This would encourage companies to expand capacity and boost employment and investment amidst congenial financial conditions, he said, adding the recent tax cuts on petroleum products will give a further fillip to consumption.

Stating that reinvigorating private investment is crucial to realise the growth potential, Das said various policy measures such as a cut in corporate taxes, taxation reforms, the introduction of a performance-linked incentive scheme for 13 major sectors, enhanced focus on infrastructure development and asset monetisation, and proactive liquidity measures by the RBI etc are all leading to investment demand.