Low, stable inflation critical for spurring growth: RBI article

Improving infrastructure, ensuring low and stable inflation, and maintaining macroeconomic stability are critical for reviving animal spirits and spurring growth, according to an article published in the RBI Bulletin on Tuesday.

The article titled ‘State of the Economy’ notes that the Indian economy consolidated its recovery, with most constituents surpassing pre-pandemic levels of activity.

Heightened global risks stemming from weakening growth, elevated inflation, supply disruptions on account of geopolitical spillovers and financial market volatility stemming from synchronised monetary tightening pose near-term challenges.

“India faces challenges in building from the scars of the pandemic through larger investments in health and productivity of the human capital,” the article said.
The central bank, however, said the views expressed in the article are those of the authors and do not necessarily represent the views of the Reserve Bank of India (RBI).

Further, it said that with an acceleration in the pace of digitalisation, the footprint of the unicorn ecosystem in India is expanding, reflecting a rapidly changing economy.

“In order to achieve a higher growth path on a sustainable basis, private investment needs to be encouraged through higher capital expenditure by the government which crowds in private investment,” it said.

The global growth outlook appears grim as geopolitical tensions linger, commodity prices remain elevated and withdrawal of monetary accommodation gathers speed, the article noted.

According to the article, emerging economies face risks of capital outflows and higher commodity prices feeding into inflation prints while the pandemic continues to impinge on near-term economic prospects.