The shadow of the coronavirus pandemic on the Indian economy is going to last for another 12 years. The Indian economy is expected to overcome the Covid-19 losses by FY35, the RBI has said.

 The output losses due to the pandemic are Rs 52.6 lakh crore over the last three years. The RBI estimates the losses to be at Rs 19.1 lakh crore for 2020-21, Rs 17.1 lakh crore for 2021-22 and Rs 16.4 lakh crore for 2022-23.

 India was hit in terms of output, lives and livelihoods which may take years to recover, the RBI said in its report ‘Currency and Finance for the year 2021-22’. Even after two years, economic activity has barely recovered to pre-Covid levels.

 Taking the actual growth rate of -6.6% for 2020-21, 8.9% for 2021-22 and assuming a 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 said.

 “The pandemic is not yet over…In India, the restriction levels are being dynamically calibrated at local levels in response to the evolving situation. With the ongoing Russia-Ukraine conflict, the downward risks to global and domestic growth are getting accentuated through surge in commodity prices and global supply chain disruptions,” it added.

 A GDP growth rate of 6.5-8.5% is feasible in the medium-term, consistent with the blueprint of reforms. “Timely rebalancing of monetary and fiscal policies will likely be the first step in this journey,” the RBI report said.

 The projections come at a time when the domestic economy is reeling under high inflationary pressures and large-scale unemployment along with severe distress among the medium, small and micro enterprises. In its policy statement earlier this month, the central bank moderated its growth projection to 7.2% for FY23, from 7.8% made earlier.  

 “It is not just sufficient to stabilise the economy and return it to its pre-first wave path. The task at hand is to create a virtuous cycle of greater opportunity for entrepreneurs, businesses and the fiscal authority,” RBI Governor Shaktikanta Das in the foreword to the report said.

 The government debt needs to be reduced to below 66% of GDP and price stability is a necessary precondition for strong and sustainable growth. According to the report, reducing general government debt to below 66% of GDP over the next five years is important to secure India’s medium-term growth prospects.

 Sustained thrust on capital expenditure by the government, push to digitalisation and growing opportunities for new investment in areas like e-commerce, start-ups, renewables, and supply chain logistics could contribute to step up the trend growth while closing the formal-informal gap in the economy.

 "For restoring and recreating a policy environment conducive for private sector-led growth post-COVID, timely rebalancing of monetary and fiscal policies may become necessary given the current configurations of debt and liquidity. Government debt exceeding threshold levels exerts upward pressures on the term premium and dampen growth. Time varying fiscal multipliers suggest that fiscal consolidation is not growth retarding once the economy recovers to its steady state. The debt path over the next five years, even under the best-case scenario, may further squeeze fiscal space unless strategic policy efforts covering both taxes and expenditure aim at targeted consolidation," the report said.