Context: Recently, Reserve Bank of India(RBI) has released its Annual Report 2019-20.
Key data drom the report

• Balance sheet of RBI: The balance sheet of RBI has increased by 30%, due to increase in domestic and foreign investments, loans, advances and in gold.
• Economic Growth: The economy is expected to contract and is expected to take some time to regain the pre-Covid momentum as the shock to consumption is severe and the poorest have been hit the hardest.
• Inequity: The pandemic has exposed new inequities — white collar employees can work from home while essential workers have to work on site exposed to the risk of getting infected.
• Investment: RBI has suggested targeted public investment funded by asset monetisation and privatisation of major ports as a viable way to revive the economy.
• Frauds: The frauds reported by banks of ?1 lakh and above have increased by 28% by volume and 159% by value during 2019-20.Public sector banks accounted for 80% of the frauds followed by private sector banks at 18%.
• Currency in Circulation: Since March 2020, currency in circulation has risen to 26.9 lakh crore—a hike of 10% since the lockdown began as pandemic has triggered a ‘dash to cash’ with many households hoarding bank notes.However,the number of Rs 2000 notes in circulation has dipped sharply in last two years.
• Fake Notes: The number of fake notes in Rs 500 denomination has increased in 2019-20. However,there has been a decline in the overall number of counterfeit notes detected compared to the previous year.

Slow Economic Recovery

• The economic contraction triggered by pandemic will take longer time to regain the pre-Covid momentum, as the shock to consumption is severe.
• The discretionary elements in private consumption has significantly reduced, particularly in transport services, hospitality, recreation and cultural activities.
• The discretionary spending includes spending on vacation and entertainment.
• Urban consumption demand has suffered significant loss, passenger vehicle sales and supply of consumer durables in the first quarter of 2020-21 have dropped to 1/5th and 1/3rd, respectively, of their level a year ago. Air passenger traffic has also ground to a halt.

Citing the data of e-way bills for the month of July 2020, RBI said that the consumer confidence fell to an all time low, because of pessimism relating to the general economic situation, employment, inflation and income.

• e-way bills are an indicator of domestic trading activity.

However, the rural demand fared better, tractor sales picked up by 38.5% in July 2020, spurred by the robust pace of kharif sowing. There was also an increase in motorcycle sales in July.

• The pandemic has also exposed new kinds of inequalities e.g white collar employees can work from home while essential workers have to work on site, exposed to the risk of getting infected.
• In some areas of work such as hospitality, hotels and restaurants, airlines and tourism, employment losses are more severe than in other areas.

The sharp cut in corporate tax rate announced by the government in 2019 did not help in restarting the investment cycle as was intended. Instead it has been used by companies to reduce debt and build up cash balances.

Inflation

• Headline inflation may remain elevated in the second quarter of 2020-21 but may moderate during the second half of 2020- 21.
• Retail inflation was at 6.93% in July, above the upper tolerance limit of 6%.

Suggestions Made by RBI

• Targeted public investment funded by asset monetisation and privatisation of major ports is a viable way to revive the economy.
• Goods and Services Tax (GST) Council type of apex authorities can be set up in respect of land, labour and power to drive structural reforms and speedier implementation of infra projects.
• Recapitalisation of public sector banks, this assumes significance as the minimum capital requirements, which are calibrated on the basis of historical loss events, may no longer suffice to absorb post-pandemic losses.