Private consumption and investments are work in progress: RBI Deputy Governor

Lifting private consumption investment and revival of micro small and medium enterprises (MSMEs) are key challenges going forward for the Indian economy, says Michael D. Patra, RBI deputy governor. He pointed out that the central bank’s policy steps have helped the Indian economy grow amid challenges brought in by the COVID-19 pandemic. But more needs to be done.

Patra believes that holding rates steady and retaining the accommodative monetary policy has served the India well so far. “We are on the course to becoming among the fastest growing economies of the world, but there is far to go. Private consumption and investment are still work in progress. The restoration of livelihoods and the revival of MSMEs is a formidable task that lies ahead,” the deputy governor said. “The RBI remains committed to revive and sustain growth on a durable basis and continue to mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target going forward.”

RBI said that despite the risk of falling behind the curve in raising policy rates amid rising prices, India has held its ground. As such, it has continued with accommodative monetary policy to focus on growth.

Patra noted that several emerging market economies are tightening their monetary policy and advanced economies are announcing policy normalization as a response to the rising inflation. “India’s consumer price index (CPI) rose to a five month high of 5.59% in December, but remained below the upper tolerance band of 6%. Only time will tell whether or not India has got it right, but so far, this approach has served us well and helped in charting a course into the future which is different from the world.”

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Since March 2020, the Reserve Bank of India has unleashed a series of measures to help the Indian economy navigate through the severe disruptions brought about by the coronavirus pandemic. Patra said RBI’s measures contributed significantly in engineering the turnaround in the Indian economy. This was supported by rising financial inclusion and digitalization. He believes the lessons of the pandemic will be imbibed and the RBI will come up stronger and more resilient.