Mumbai, May 18 (FN Agency) Amid concerns of rising inflation stemming from geopolitical tensions, increasing government spends and maintaining macroeconomic stability is critical for reviving animal spirits and spurring growth, according to a Reserve Bank of India article on the state of the economy. The article published in the RBI Bulletin May 2022 noted that the 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. In order to achieve a higher growth path on a sustainable basis, the article pointed out that private investment needs to be encouraged through higher capital expenditure by the government which crowds in private investment. “Improving infrastructure, ensuring low and stable inflation and maintaining macroeconomic stability are critical for reviving animal spirits and spurring growth,” it said.
To tame the elevated inflation, RBI’s Monetary Policy Committee recently, in an off-cycle meeting, increased the repo rates by 40 basis points to 4.4 percent. The article stated that the global growth outlook appears grim as geopolitical tensions linger, commodity prices remain elevated and withdrawal of monetary accommodation gathers speed. Emerging economies face risks of capital outflows and higher commodity prices resulting into higher inflation. The article, however, noted that India’s economic recovery remains resilient, although risks stemming from global developments have thwarted the momentum. “India faces challenges in building from the scars of the pandemic through larger investments in health and productivity of the human capital. With an acceleration in the pace of digitalisation, the footprint of the unicorn ecosystem in India is expanding, reflecting a rapidly changing economy,” the article stated.