RBI Highlights Services Sector as Growth Catalyst for Emerging Economies

RBI Deputy Governor Michael Debabrata Patra emphasized the importance of emerging and developing economies utilizing the services sector to promote productivity growth. He suggested that investing in information and communication infrastructure, reducing trade costs, and implementing business-friendly reforms could encourage private sector participation in this effort. Patra made these remarks during the Sixth Asia KLEMS Conference held at Lonavala.

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Furthermore, Patra highlighted that increasing labor force participation rates, particularly among women and older workers, could contribute to productivity growth. However, achieving this would necessitate investments in improving workability, retraining, and acquiring new skills that align with evolving technology. Patra emphasized the need for a comprehensive policy intervention that encompasses multiple strategies to effectively revive and sustain productivity growth, acknowledging that various factors may be involved.

According to Patra, an effective policy response should prioritize technological capital deepening, supported by long-term investments in research and development to foster a competitive innovation ecosystem. Additionally, there is a need for skill development through consistent educational achievements and training, as well as strengthening physical infrastructure.

The central bank, which has been actively combating high inflation, has raised the repo rate by 250 basis points since May of the previous year. However, in the June 6-8 meeting, the Monetary Policy Committee, led by the central bank, chose to maintain the current policy stance of gradually withdrawing from accommodative measures.

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Patra emphasized the importance of central banks gaining a comprehensive understanding of productivity trends to accurately assess the economy’s position within the business cycle. This understanding is crucial for formulating suitable policy responses that support consistent and non-inflationary economic growth. By doing so, financial market confidence can be fostered, leading to improved overall flow of finance within the economy, according to the deputy governor.