Covid-ravaged economy may take 15 years to repair: RBI

It said that government reforms need to be augmented by other measures to reverse the sustained decline in private investment and low productivity

The Indian economy was riddled with several structural impediments to growth even before the outbreak of Covid-19 which had dampened the investment outlook. Covid-induced supply disruptions have imposed testing challenges, and it will take nearly 15 years for the Indian economy to make up for the losses during the pandemic, a new RBI report said on Friday.

"Taking the actual growth rate of -6.6% for 2020-21, 8.9% for 2021-22 and assuming growth rate of 7.2% for 2022-23, and 7.5% beyond that, India is expected to overcome Covid-19 losses in 2034-35," the report on Currency and Finance said.

On sector-specific findings, the report said the agriculture sector suffers from low capital formation, declining R&D, low crop yields, inadequate crop diversity and intensity, with excessive dependence on subsidies and price support schemes. India’s dependence on imports of minerals, depleted natural endowment is another drag.

In manufacturing, a few capital intensive industries have garnered the lion’s share of physical investment, whereas the investment share of employment generating industries and high-demand electronics and computer industries has either stagnated or contracted over the years.

Read | Structural reforms, price stability key for sustained growth: RBI report

In the services sector, growth slowdown was primarily led by construction, financial services, and transport and communication services, due to prevalence of many sector-specific problems.

It said though the government has initiated certain reforms, these need to be augmented by other measures to reverse the sustained decline in private investment and low productivity in the economy.

"What is needed include access to litigation free low cost land; raising the quality of labour through large scale expansion of public expenditure on education and health and the skill India mission; reducing the cost of capital for industry and improve resource allocation in the economy by promoting competition; encouraging industries and corporates to scale up research and development activities with an emphasis on innovation and technology," the report said.

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