Mumbai (Maharashtra) [India], Aug 25 (ANI): Declining capacity utilisation, weakening of consumption demand and overhang of stressed balance sheets are restraining new investments, the Reserve Bank of India (RBI) said on Tuesday while calling for wide-ranging reforms to regain losses due to COVID-19 crisis and return to the path of sustainable economic growth.
The corporate tax cut of September 2019 has been utilised in debt servicing, a build-up of cash balances and other current assets rather than restarting the capital expenditure cycle, it said.
"These underlying developments suggest that the appetite for investment is anaemic and in need of more reforms," said the central bank in its 2019-20 annual report.
The RBI said that COVID-19 crisis can be converted into an opportunity by using an online provision of education and training to implement reforms in the social infrastructure by skill development and reskilling so as to prepare a labour force equipped to keep pace with a big thrust on infrastructure.
It said high-frequency indicators point to a retrenchment in the activity that is unprecedented in history.
Moreover, the upticks that became visible in May and June after the lockdown was eased in several parts of the country appear to have lost strength in July and August mainly due to reimposition or stricter imposition of lockdowns, suggesting that contraction in economic activity will likely prolong into Q2.
But business sentiment and manufacturing purchasing managers' indices (PMIs) ceased deteriorating, world trade growth seemed to be bottoming out and service sector PMIs remained in expansionary territory.
However, the impact due to factor income loss (capital and labour) of 68 days of lockdown on the manufacturing and mining sectors could be as high as Rs 2.7 lakh crore
At the same time, said RBI, the pandemic has also exposed new inequities --- white-collar employees can work from home while essential workers have to work on-site exposed to the risk of getting infected.
In some areas of work like hospitality, hotels and restaurants, airlines and tourism, employment losses are more severe than in other.
As a result, India's overall growth is projected at minus 4.5 per cent for 2020-21. Significantly, India has now reached a stage in which surplus management has become a major challenge.
"The priority is to move to policy strategies that ensure a sustained increase in farmers' income alongside reasonable food prices for consumers," said RBI.
It said information and communication technology (ICT) has been an engine of India's economic progress for more than two decades now. "Leveraging on ICT has to be a key element of the future development strategy by reducing transaction and communication costs and by improving the quality of capital."
The IT sector is best placed to drive this process and also manage its consequences. Promoting young firms and startups and ensuring their survival will be critical for greater employment generation and higher productivity-led economic growth in India, said RBI.
"It will be essential to reorient resources and policy focus in this direction. Dynamic entrepreneurship, innovation and the ability to nurture ideas to actualisation embodied in start-ups are the hallmarks of success in ICT," it added. (ANI)