The Indian economy is relatively better placed to strengthen the recovery that is underway, despite many headwinds, the Reserve Bank of India said in its annual report, released on Friday.
The central bank observed that the momentum is expected to broadly continue in 2022-23, though with risks to the downside from the geopolitical shock and its spillovers.
“Despite these risks, the recovery is getting entrenched and is broadening,” the bank said.
The substantial increase in government capex outlay could crowd-in private investment and propel a virtuous cycle, thereby improving aggregate demand, the RBI added.
Nonetheless, a full recovery in aggregate demand is contingent on a turnaround in private investment.
On the supply side, there is resurgence in mining and manufacturing sectors. At the same time, the services sector, which felt the brunt of the pandemic, is staging a broad-based recovery, said RBI.
According to the report, the future path of growth will be determined by addressing supply-side bottlenecks and by calibrating monetary and fiscal policy support to aggregate demand and structural reforms. The central bank also urged the government to reform the labor market.
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