Mumbai: The speed and scale of COVID-19 vaccination will shape the path of economic recovery that has the resilience and fundamentals to rebound from the pandemic and break free from pre-existing cyclical and structural impediments, according to a report by the RBI.
According to the current assessment, the second wave of the pandemic has mainly affected domestic demand, the RBI said in a “state of the economy” article co-authored by RBI Deputy Governor MD Patra. and other officials.
Observing that vaccines alone will not end the pandemic, the article states: “We must learn to live with the virus, complementing vaccines with increased investment in health care, logistics and research. .
“The pandemic is a real shock with real consequences. Therefore, it is necessary to ensure that the recovery is built on a solid foundation of business investment and productivity growth.”
India’s economy, he added, continues to struggle with the second wave of the pandemic, although cautious optimism is returning.
The authors of the article include RBI Deputy Governor Michael Debabrata Patra. The central bank, however, said the opinions expressed in the article are those of the authors and do not necessarily represent the views of the Reserve Bank of India.
On the bright side, several aspects of the overall supply conditions – agriculture and contactless services are holding up, while industrial production and exports have surged amid pandemic protocols, he said.
“Going forward, the speed and scale of vaccination will shape the path to recovery. The economy has the resilience and fundamentals to rebound from the pandemic and break free from pre-existing cyclical and structural impediments,” the report said. article.
The article notes that the Ministry of Finance estimates that to achieve herd immunity and regain the momentum of economic recovery, the target population to be vaccinated is 70 crore by September 2021 and around 113 crore additional doses are needed. ; as a result, around 93 lakh vaccinations are required per day to achieve herd immunity.
While the maximum daily vaccination rate achieved so far is 42.65 lakh, “doubling shifts and possibly vaccinating 24/7 for a few months may enable the ambitious, but possible, throughput. of 1 crore shots per day”, according to the Monthly Economic Review (May 2020), Department of Economic Affairs, Ministry of Finance.
The article also said that one aspect of RBI’s annual report that has raised considerable “heat and dust” in the media is the surplus transferred to the government.
Coming mainly from savings on balance sheet provisions and employee and other pension funds, the surplus is only 0.44% of GDP (which is considered a measure of seigniorage), he said. .
Referring to the findings of extensive research on central banking in developing countries, the article said: “From the standpoint of surplus transfer alone, therefore, the Reserve Bank can be characterized as ‘free’ and conducting an independent monetary policy, that is to say, independent of fiscal dominance”.
According to another article published in the RBI Monthly Bulletin titled “Fiscal Framework and Spending Quality in India,” the COVID-19 pandemic has necessitated an overwhelming fiscal response from governments around the world. As India rolls back fiscal stimulus and embarks on a path of fiscal adjustment, there is a need to focus on “how” rather than “how much,” he said.
RBI said the article proposes a few quantifiable indicators, namely the ratios of revenue expenditure to capital expenditure and revenue deficit to gross fiscal deficit, along with threshold levels for them that can be suitably built into the fabric. budget for a sustainable growth trajectory.