RBI says lack of domestic demand affecting ‘animal spirits’ of economy

  1. According to the annual report of the RBI,the lack of domestic demand is holding back the animal spirits in the economy. 
  2. Animal spirit is a term used by the British economist,John Maynard Keynes to describe how people arrive at financial decisions including buying and selling securities in times of economic stress or uncertainty.
  3. The report has said that the economic slowdown could be cyclical in nature rather than a deep structural one.But there are some crucial structural issues in land, labour, & agricultural marketing that require urgent reforms.
  4. The report has also emphasised on the need to revive consumption demand and private investment during 2019-20.
  5. This can be revived by (a)strengthening the banking and non-banking sectors (b)big push for spending on infrastructure (c)implementation of much needed structural reforms in the areas of labour laws, taxation and (d)other legal reforms.
  6. Further,the report has said that the Gross Non-Performing Assets (GNPA) ratio of the banking system has declined to 9.1% in March this year from 11.2% in the previous year which is a healthy sign for the financial system.
  7. However,the report has said that non-banking financial companies (NBFC) are under stress due to irrational exuberance and considerable overleveraging with asset-liability mismatches.