May take India more than a decade to ‘overcome losses’ caused by Covid: RBI Report

“India is expected to overcome COVID-19 losses in 2034-35,” the report states. “The output losses for individual years have been worked out to Rs 19.1 lakh crore, Rs 17.1 lakh crore and Rs 16.4 lakh crore for 2020- 21, 2021-22 and 2022-23, respectively.”

The report is prepared by the RBI’s research team and the recommendations should not be construed as that of RBI’s.

The report also highlighted that the pandemic is a watershed moment and the ongoing structural changes can potentially alter the growth trajectory in the medium-term.

“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 in turn, contribute to step up the trend growth while closing the formal-informal gap in the economy,” it said.

The perturbations from repeated waves of COVID-19 pandemic have come in the way of sustained recovery. Following a very sharp contraction in the June 2020 quarter, the economic momentum progressively picked up till it was hit by the second wave. Similarly, the impact of the third wave, concentrated in the month of January 2022 dented partially the recovery process.

The report by the RBIs research team also states that the pandemic is not over yet, especially as we keep in mind fresh wave of infections that have China, South Korea and several parts of Europe. Though, various economies are reacting divergently ranging from a no-COVID policy in China, Hong Kong and Bhutan and relatively open borders and removal of internal restrictions in Denmark and the UK. In India, the restriction levels are being dynamically calibrated at local levels in response to the evolving situation.

The team also red-flagged concerns emanating from the ongoing Russia-Ukraine conflict, that poses downward risks to global and domestic growth.

“The supply constraints and longer delivery times pushed up shipping costs, commodity prices, thereby intensifying inflationary pressures and threatening the nascent economic recovery across the world,” it stated. “India too felt the pressure from the global supply chain disruptions with the supplier’s delivery time falling to its lowest point. The increased delivery times and higher raw material prices squeezed profits of Indian firms. Growth risk from geopolitics-induced supply shocks looks more acute for oil importers like India who are already facing a tight fiscal position due to the pandemic related relief packages by the Government.”