The Indian economy is expected to fully recover from Covid-19 losses by the financial year 2034-35, the Reserve Bank of India (RBI) says in a report.

India suffered among the biggest pandemic-induced losses in the world in terms of output, lives and livelihoods, which may take years to recover, the central bank says in its report titled "Revive and Reconstruct".

The Covid-19 pandemic will go down in history as one of the worst health crises the world has ever faced, says RBI, adding its economic impact may linger for many more years.

"Economic activity has barely recovered to pre-Covid levels even after two years. India's economic rebound also faces difficult challenges from the legacy of deep-rooted structural bottlenecks as well as the scars of the pandemic," the Reserve Bank says.

Adding to India's woes, the Russia-Ukraine conflict has also dampened the momentum of recovery, with its impact transmitting through record high commodity prices, weaker global growth outlook and tighter global financial conditions, it adds.

In its report, RBI concludes that the recovery in economic activity remains stimulus dependent, even as new risks to growth and inflation have emerged from the war in Ukraine and normalisation of monetary policy in the US. The banking regulator suggests that large surplus liquidity that helped financial conditions to ease significantly during Covid-19 needs to be withdrawn in a calibrated manner.

In its policy agenda for post Covid-19 India, RBI says timely rebalancing of monetary and fiscal policies may become necessary given the current configurations of debt and liquidity. "Monetary policy has to assign priority to price stability as the nominal anchor for the future growth trajectory," it adds.

Reducing debt to more sustainable levels will be daunting, according to the RBI. "Even under best possible macroeconomic outcomes, general government debt may not decline below 75% of GDP over the next five years. If adverse scenarios materialise, debt may, in fact, hover above 90% of GDP all through."

On the burgeoning fintech ecosystem in the country, RBI warns that with increasing dominance of Big Tech firms in digital payments, there could be an acceptance of data-fuelled oligopoly for cheap services. "Digital literacy and healthy competition could alleviate some of these concerns, and therefore, there is a need for re-aligning incentives to foster smaller, more innovative firms," it adds.

The Indian economy was baffled with several structural constraints to growth even before the virus outbreak, RBI says. "The sub-optimal share of manufacturing in gross value added (GVA); deployment of the bulk of physical investment in a few capital-intensive sectors leading to low overall productivity; labour market rigidities hindering the creation of formal employment; the subsidy-heavy and low-investment imbalance in agriculture depressing yields; and weak growth dynamism in services reflect several infirmities in major sectors of the economy, which would require bold factor and product market reforms and effective implementation of several momentous reforms already announced to accelerate the growth momentum on a durable basis in the medium-term."

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