The Indian economy contracted by 7.3 percent in the fiscal year 2020-21 and suffered a deficit of 6.8 percent of the GDP. The forecast points that it will be further lowered to 4.5 percent by 2025-26.
The World Bank, on the other hand, made a projection in direct contrast to that of the Reserve Bank of India and noted the economy will grow at 8.3 percent. The Reserve Bank of India had lowered the growth projection from 10.5 percent to 9.5 percent for the year 2021-22.
The second wave coronavirus caused yet another chain reaction across industries, leading many of them to shut shops at the behest of the state governments. As a result, metropolitan cities witnessed protests against the respective governments for abruptly imposing lockdown without thinking about the consequences businessmen and workers surviving on their daily income would cope with yet another restriction.
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With debt-to-GDP projection soaring to an unnerving 86.6 percent from 72.2 percent in the last year, the government must start sieving out options such as COVID-19 Bonds to monetize.
The former Central Bank Governor maintained in an interview with Press Trust of India, that the economic recovery is extremely uneven between the upper-income group and the lower-income group. The recovery has induced a disruption, causing the prices of stocks to go up despite the pandemic.
The informal sector was the most affected by the contraction in the year 2020. A speedy recovery was expected this year, but the second wave has dampened the recovery, according to Governor D Subbarao.
He also elicits that printing more money to fund the Government Deficit is a vague assumption that the RBI isn’t doing so. The Central Bank is printing money as a part of its liquidity operations to purchase bonds under open market operations (OMO) and invest in dollars under its forex operations.
When asked whether Covid-19 bonds would make a difference, he observed, ‘it is something worth considering, not in addition to budgeted borrowing, but as a part of that. Subbarao also maintained, ‘Appropriately priced and structured, they can provide relief to savers who are short-changed by the low-interest rates on bank fixed deposits.