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Amid uncertainties arising out of the second wave of COVID-19, Reserve Bank of India (RBI) in its annual report has said that a durable revival of private consumption and investment would be critical for sustaining economic growth post-pandemic. Typically, it said, post-crisis recoveries are led more by consumption than investment. However, it said investment-led recoveries can be more sustainable and can also lift consumption in parts by better job creation. In either case, private demand plays a pivotal role.

Observing that 2020-21 has left a scar on the economy, it said in the midst of the second wave as 2021-22 commences, pervasive despair is being lifted by cautious optimism built up by vaccination drives. The second wave of the pandemic has prompted revision of growth projections for the current fiscal and the consensus appears to be gravitating towards RBI's forecast of 10.5 per cent. RBI cautioned that the pandemic is the biggest risk to this outlook. Yet, upsides also stem from the capex push by the government, rising capacity utilisation and the turnaround in capital goods imports.

The report further said that the waiver of compound interest on all loan accounts which opted for moratorium during March-August 2020 may put stress on the financial health of banks. However, the apex bank expressed confidence that banks are better positioned than before in managing stress in balance sheets in view of higher capital buffers, improvement in recoveries and a return to profitability.