What does the COVID-19 experience tell us about Indian growth drivers?

In India's battle with Covid-19, recovery was largely under-predicted and financial sector distress over-predicted. The slowdown through the 2010s led to the view that structural features limit growth and financial sector malfunction lowers monetary transmission. Therefore the reliance on the latter, while fiscal policy was relatively conservative, was expected to slow recovery. The inference from better than expected outcomes is that reforms have reached a threshold and monetary stimulus affects output. Diversity and deepening is sufficient to make the financial sector more stable. A turnaround in liquidity in 2019 had led to a rise in high frequency indicators by the end of the year before Covid-19 hit. Similarly, it aided recovery after Covid-19 waves. Tight monetary-financial conditions through the decade reduced growth. More than fundamental reforms, sustaining Indian growth requires continued fiscal supply-side action that reduces costs of doing business and inflation, allowing monetary policy to keep real interest rates below growth rates, thus stimulating demand and allowing public debt ratios to fall. Such monetary-fiscal coordination works best in Indian conditions. External shocks have to be smoothed and large domestic policy shocks avoided to lower growth volatility. We briefly discuss feasible reforms that can deliver, supported by softening of traditional macroeconomic constraints that were responsible for post-reform growth volatility.