IN QUEST FOR POLICY “SILVER BULLETS†TOWARDS TRIGGERING A V-SHAPED RECOVERY

Soumya Bhadury (), Saurabh Ghosh () and Pawan Gopalakrishnan
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Soumya Bhadury: Strategic Research Unit, Department of Economic Policy and Research, Reserve Bank of India, Mumbai, India
Saurabh Ghosh: Strategic Research Unit, Department of Economic Policy and Research, Reserve Bank of India, Mumbai, India

The Singapore Economic Review (SER), 2024, vol. 69, issue 03, 1023-1045

Abstract: In view of the interaction between demand and supply shocks and the nature of the disparity in business cycles between Advanced Economies (AEs) and Emerging Market Economies (EMEs), we reinvigorate policy “silver bullets†that ascertain a sustainable growth revival in the aftermath of the COVID-19 shock. Using a novel business cycle dating algorithm, we identify up-cycle and down-cycle phases in India’s gross domestic product growth rate and use dynamic factor analysis using several high-frequency indicators for tracking private investment activity in India. On the demand side, our empirical results indicate that a boost to private investment can arrest a growth deceleration during a down-cycle, via consumption and output channels. We also observe that both the quantum and quality of public expenditure play an important role in arresting the growth deceleration. On the supply side, however, global supply chain disruptions could dampen the pace of investment during the post-COVID investment-led recovery. For both channels to work, credit offtake is necessary for a bank-dominated EME like India. Finally, despite low-capacity utilization rates, we draw several policy conclusions to jump-start economic activity levels.

Keywords: Turning point analysis; investment-led recovery; capex; credit; GNPA; liquidity (search for similar items in EconPapers)
JEL-codes: C32 C51 E32 E58 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1142/S0217590823500285

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