Reviving Consumption Demand And Private Investment Assume Highest priority Says RBI Annual Report

Reviving consumption demand and private investment has assumed the highest priority in 2019-20, the Reserve Bank Of India (RBI) noted in its latest Annual Report. This may involve 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, which will also enhance ease of doing business in pursuit of fulfilling the vision of India becoming a US$ 5 trillion economy by 2024-25.

Half way through the financial year 2019-20, several uncertainties weigh on the near-term outlook for the global economy and India. After growing strongly in January-March 2018, the global economy began to slow in subsequent months. The loss of speed spread to different parts as political developments purveyed heightened uncertainty, world trade froze, and investment slumped, while manufacturing weakened worldwide.

India's real GDP growth clocked an average of 7.7% during 2014-18 and 8% in Q1 of 2018-19, but it began to shed momentum through the rest of 2018-19. The year 2018-19 began on a robust note, but it was to be marked by unanticipated swings and turning points that would take their toll on India's macroeconomic performance. The drivers of growth were hit by downturns at different points of time. Gross fixed capital formation slowed in Q2, which further deepened during subsequent quarters, with knock-on effects on manufacturing and net exports in Q2 and Q3.

As in the rest of the world, private consumption remained resilient, supporting services. From the second half of the year, however, and right up to the time of writing, this mainstay of aggregate demand in India has weakened more than initially anticipated. Meanwhile, the growth of value added in agriculture and allied activities decelerated from Q3. This, in turn, pulled down rural demand.

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