Cautioning that India’s potential output may undergo a structural downshift following the pandemic, the Reserve Bank on Tuesday made a strong case for deep-seated and wide-ranging reforms to regain losses and return to the path of sustainable economic growth.

The COVID-19 pandemic will inflict deep disfiguration on the world economy and the shape of the future will be heavily contingent upon the evolving intensity, spread and duration of COVID-19 and the discovery of the elusive vaccine, the RBI said in its ‘assessment and prospects’ which forms part of the central bank’s Annual Report for the year 2019-20.

Post-COVID-19, the overwhelming sense is that the world will not be the same again and a new normal could emerge, the Reserve Bank of India (RBI) said.

“In a post-pandemic scenario, deep-seated and wide-ranging structural reforms in factor and product markets, the financial sector, legal architecture, and in international competitiveness would be needed to regain potential output losses and return the economy to a path of strong and sustainable growth with macroeconomic and financial stability,” the RBI said.

As in the rest of the world, “India’s potential output can undergo a structural downshift as the recovery driven by stimulus and regulatory easing gets unwound in a post-pandemic scenario,” it noted.

Moreover, this recovery is likely to be different as the global financial crisis occurred after years of robust growth with macroeconomic stability; by contrast, COVID-19 has hit the economy after consecutive quarters of slowdown, it added.