After months of whistling in the dark, India finally diagnosed the nature of its economic slowdown, but with a twist.

Typically, downturns are either cyclical or structural, but RBI believes that we are seeing a bit of both. It’s a cyclical slowdown, but with deep structural problems that need urgent reforms, it concluded in its annual report released Thursday.

But by its own admission, this ‘precise diagnosis’ was rather difficult to arrive at, as the conditions weren’t really ‘easy to disentangle’.

“The key question that confronts the Indian economy as it looks ahead to the rest of 2019-20 is: are we dealing with a soft patch, or a cyclical downswing, or a structural slowdown?” the banking regulator wondered.

Should there be counter-cyclical monetary and fiscal policy actions? Or deep-seated reforms? Policy responses are dependent on the answers, but RBI gave away little.

“Proximate answers could perhaps be found in the lessons of the experience of 2018-19, with which it could be feasible to assess the outlook for 2019-20 and the challenges that lie ahead,” it said.

The government’s fiscal policy appears exhausted — which is to say fiscal stimulus is ruled out — leaving the central bank to do the heavy lifting via its monetary policy.

While admitting that our golden growth years are turning leaden, RBI was convinced that a broad-based cyclical downturn was underway across manufacturing, trade, construction, agriculture and real estate.

“The recent deceleration could be in the nature of a soft patch mutating into a cyclical downswing, rather than a deep structural slowdown. Nonetheless, there are still structural issues in land, labour, agricultural marketing and the like, which need to be addressed,” it said.

Indian economy needs investments and consumer demand, but it’s getting neither. As if poking on a sore spot, the central bank further noted that investment rate crashed from 40 to 32 per cent in past seven years and that its revival along with consumption demand should be our ‘highest priority.’

While the Reserve Bank of India refrained from broaching on the reasons for the slump, it, however, prepared an FAQ of sorts for North Block to exit the deepening rut.

“What ails the animal spirits? At the core is the issue of domestic demand.”

“And what should be the policy focus? Continuing focus on improving ease of doing business; reforms in factors of production, viz., land and labour; capitalising on opportunities opened up by the heightened trade tensions; and faster implementation of capital expenditures by public authorities, and similar other measures have the potential to inject growth impulses into the economy.”

How to revive investments and demand?

“This may involve strengthening the banking and non-banking sectors, a big push for spending on infrastructure and implementation of much-needed structural reforms in the areas of labour laws, taxation, and other legal reforms, which will also enhance ease of doing business in pursuit of fulfilling the vision of India becoming a $5 trillion economy by 2024-25.”