Revival of private consumption, investment critical for post-Covid growth: RBI

Amid uncertainties arising out of the second wave of Covid19 the Reserve Bank on Thursday said that a durable revival of private consumption and investment would be critical for sustaining economic growth postpandemicObserving that 202021 has left a scar on the economy RBI in its annual report said in the midst of the second wave as 202122 commences pervasive despair is being lifted by cautious optimism built up by vaccination drivesThe second wave of the pandemic has prompted revision of growth projections for the current fiscal and the consensus appears to be gravitating towards RBIs forecast of 105 per cent the report addedAlso read RBI issues guidelines for amalgamation of district central coop banks with state coop banksThe 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 importsIn a separate box on what would drive growth recovery after the crisis RBI said for a selfsustaining GDP growth trajectory postCovid19 a durable revival in private consumption and investment demand together would be critical as they account for around 85 per cent of GDPTypically it added postcrisis recoveries are led more by consumption than investmentHowever investmentled 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 addedThe 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 nonperforming asset NPA classification and outbreak of the second Covid19 waveThe waiver of compound interest on all loan accounts which opted for moratorium during MarchAugust 2020 may put stress on the financial health of banks the report saidThe 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 profitabilityStress tests indicate that Indian banks have sufficient capital at the aggregate level even in a severe stress scenario Bankwise as well as systemwide supervisory stress testing provide clues for a forwardlooking identification of vulnerable areas RBI said in its annual report 202021The report has emphasised the need for banks to keep a tab on the NPAs and accordingly earmark capital for the provisionThe report also revealed that the banknotes in circulation witnessed higher than average increase during 202021 on account of precautionary holding of cash by people induced by Covid19 pandemicThe value and volume of banknotes in circulation increased by 168 per cent and 72 per cent respectively during 202021 as against an increase of 147 per cent and 66 per cent respectively witnessed during 201920 said the RBI annual reportIn value terms the share of Rs 500 and Rs 2000 banknotes together accounted for 857 per cent of the total value of banknotes in circulation as on March 31 2021 as against 834 per cent as on March 31 2020On inflation the report said supplydemand imbalances may continue to exert pressure on food items like pulses and edible oils prices of cereals may soften with bumper foodgrain production in 202021Pressures from food items like pulses and edible oils are likely to persist in view of supplydemand imbalances while cereal prices may continue to soften with the bumper foodgrain production in 202021 it saidAs per the report conduct of the RBIs monetary policy in 202122 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 targetThe next bimonthly meeting of the key rate setting panel Monetary Policy Committee MPC is scheduled for June 2 to 4 2021This story has been sourced from a third party syndicated feed agencies Midday accepts no responsibility or liability for its dependability trustworthiness reliability and data of the text Midday managementmiddaycom reserves the sole right to alter delete or remove without notice the content in its absolute discretion for any reason whatsoever