Michael D Patra, deputy governor of the Reserve Bank of India (RBI) has pitched for a multi-pronged policy response to reignite and sustain productivity and growth at a time when multiple factors which can influence the economy are at work. The policy response has to be powered by technological capital deepening, accompanied by long-term investment in research and development to nurture a competitive innovation ecosystem, skill development through sustained educational attainments and training, and building up the physical infrastructure, he said.
Emerging Markets and Developing Economies (EMDEs) need to leverage the potential of the services sector to drive productivity growth, Patra said in his inaugural address at the Sixth Asia KLEMS Conference in Lonavala. Investing in ICT infrastructure, securing reduction in trade costs like those associated with shipping, logistics and regulation and supportive business-enabling reforms could help to engage the private sector in partnering in this endeavour, he said.
Patra also said raising labour force participation rates, especially among women and older workers, could also boost productivity, but this will require investments in workability, retraining, and acquisition of new skills in line with changing technology.
Citing OECD, the deputy governor said, digitalisation as a key avenue for future productivity growth by harnessing the power to rapidly diffuse and replicate ideas, informational goods and business processes at near-zero marginal cost.
Easing and expanding access to finance for small and medium enterprises can generate productivity bursts, especially in EMDEs, he said. Central banks are stakeholders in this effort in view of their mandates of macroeconomic and financial stability, he said.
A deeper understanding of productivity trends is needed by them in order to judge the position of the economy on the business cycle so as to fashion appropriate policy responses that ensure sustained non-inflationary economic growth, he said. In turn, Patra added, this will promote financial market confidence and the overall flow of finance in the economy.
The RBI's Monetary Policy Committee (MPC), headed by Governor Shaktikanta Das, on Thursday announced to keep policy rate unchanged at 6.5 per cent. This was second time in a row that the RBI opted for a pause in rate hike. The central bank has retained growth projection at 6.5 per cent for FY24, expects 8 per cent growth in Q1, 6.5 per cent in Q2, 6 per cent in Q3, while 5.7 per cent in Q4.