Economic recovery now taking hold; tax cut on petrol, diesel to augment purchasing power: RBI Governor

RBI Governor Shaktikanta Das on Tuesday said that numerous indicators suggest that economic recovery is now taking hold, however, this recovery remains uneven.
 
Speaking at the SBI Banking and Economics Conclave, the central bank governor said that contact-intensive services are still to regain their lost momentum and capacity despite the rapid improvement in the recent period.
 
"The Q1 2021-22 data of GDP revealed that there still exists significant gap in both private consumption and investment relative to their pre-pandemic levels in 2019-20. So while the economy is picking up, it is yet to cover a lot of ground before it can get broad-based and well entrenched. This points to the need for sustained impetus so that growth could return to or better still exceed the pre-pandemic trend," Das said, adding that India has the potential to grow at a reasonably high pace in the post-pandemic scenario.
 
Despite many economists revising down their growth forecasts between 8.5 and 10 per cent for the current fiscal, the central bank has not changed its forecast of 9.5 per cent for the year so far.
 
Das also pointed out that private consumption can act as the backbone for economic growth and hailed the recent cut in excise duty on petrol and diesel by the Centre and VAT by state governments. He said these cuts will augment purchasing power, which will further create space for higher consumption.

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The RBI Governor argued that some improvement has been observed in investment activities in the recent period. Besides, he said, the early financial results of listed companies for July-September quarter suggest robust sales and resilient profitability despite input cost pressures, which can also create space for capacity expansion by the corporate sector.
 
"The future belongs to data driven smart manufacturing and the businesses need to gear up to make the right investment sooner than later," Das said, adding that a right mix of investment in physical and human capital can usher in an era of sustained growth.
 
He also spoke about the new-age companies and said India has emerged as a top performer in the start-up landscape.
 
The governor asked banks to be investment-ready when the investment cycle picks up. Das took solace in the fast-improving balance sheets of banks, and said gross bad loans of banks have come down in the September quarter from the previous quarter.
 
He also asked banks to improve their capital management process, and to avoid "herd mentality" and look for differentiated business strategies.

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