India faces growth, inflation challenges but medium-term fundamentals solid, chief economic advisor says

CEA V Anantha Nageswaran (Illustration: Moneycontrol)

India’s faces immediate challenges on the growth, inflation and fiscal fronts but its medium-term fundamentals remain solid, chief economic advisor V Anantha Nageswaran said on June 8.

“We are right now in a situation where there is considerable amount of challenges that we face for the Indian economy both from the global macro monetary policy and political developments,” Nageswaran said at an event, in his first comments after the Reserve Bank of India raised its policy rate by 50 basis points.

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“This year, we will be facing the challenges of managing a sustainably high growth rate, moderate inflation, keeping the fiscal deficit under balance and also ensuring that the external value of the Indian rupee remains stable.”

While there is no pre-programmed roadmap for meeting these challenges, the chief economic adviser assured that the finance ministry is well prepared to meet the challenge of balancing the four important considerations.

“Naturally, there will be adjustments as we go along in the course of the financial year as developments happen. But we are quite aware that the hard earned macro and financial stability of the last several years will be important to maintain and they will also stand in good stead as we navigate these immediate and near-term challenges.”

Moreover, the economy is better placed than many others to face the current set of challenges, the CEA added.

Also read: RBI raises repo rate by 50bps to 4.9% to fight inflation pressure

The RBI earlier today raised the policy repo rate to 4.9 percent, further rolling back its pandemic-era stimulus. The central bank maintained its 7.2 percent growth projection for this fiscal year but raised its inflation estimate to 6.7 percent.

Since the pandemic hit, New Delhi has sought to help the weak sections through cash and foodgrain transfers while the central bank had slashed interest rates sharply to help the economy.

However, inflation has remained stubbornly above target for the last couple of years and has spiked sharply in the recent months amid continued supply chain disruptions due to the Russia-Ukraine war.

The Centre seeks to lower its budget deficit to 6.4 percent of gross domestic product in FY23 from 6.7 percent in the previous fiscal year.

While the RBI has been hiking interest rates to curb inflation, New Delhi has also taken a slew of supply-side measures, including limiting wheat exports, to ensure price stability. Several of these steps will hurt the exchequer.