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Agencies:

Declining capacity utilization, weakening of consumption demand and overhang of stressed balance sheets are restraining new investments, the Reserve Bank of India (RBI) said on Tuesday while calling for wide ranging reforms to regain losses due to COVID-19 crisis and return to the path of sustainable economic growth.

The corporate tax cut of September 2019 has been utilized in debt. servicing, a build up of cash balances and other current assets rather than restarting the capital expenditure cycle, it said.

�These underlying developments suggest that the appetite for investment is anaemic and in need of more reforms,� said the Central Bank in its 2019-20 annual report.

The RBI said that COVID-19 crisis can be converted into an opportunity by using an online provision of education and training to implement reforms in the social infrastructure by skill development and re-skilling so as to prepare a labour force equipped to keep pace with a big thrust on infrastructure. It said high frequency indicators point to a retrenchment in the activity that is unprecedented in history.

Moreover, the upticks that became visible in May and June after the lockdown was eased in several parts of the country appear to have lost strength in July and August mainly due to re-imposition or stricter imposition of lockdowns, suggesting that contraction in economic activity will likely prolong into Q2.

But business sentiment and manufacturing purchasing managers� indices ceased deteriorating, world trade growth seemed to be bottoming out and service sector PMIs remained in expansionary territory.