MC EXCLUSIVE Low inflation signals demand stress in India, says RBI MPC Member Nagesh Kumar

Nagesh Kumar, RBI MPC external member

The Consumer Price Index (CPI) inflation, which has been trailing lower since last few months have provided a policy space for a rate cut, but too low inflation rate is not healthy for India and it suggest a demand deficit, said Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) external member Nagesh Kumar in an interview with Moneycontrol.

“Not only does the current inflation rate provide policy space for a cut, but it is actually too low for comfort, breaching the lower bound in the flexible inflation targeting regime, especially if precious metals like gold are excluded. As we know, too low an inflation rate is not healthy for a developing country like India, suggesting a demand deficit,” Kumar said.

He added that inflationary expectations in India remain firmly anchored, giving the Reserve Bank of India clear policy room to pivot towards growth support. Headline inflation is not just comfortably low; it has slipped into territory that is increasingly being seen as uncomfortable, breaching the lower bound of the flexible inflation targeting framework.

In the last three months, India’s retail inflation remained below the RBI’s lower tolerance band. As per data, CPI inflation stood at 0.7 percent in November, 0.3 percent in October, and 1.44 percent in September.

All these prints were lower due to easing food inflation and base effects.

With food prices softening and GST rate cuts continuing to work their way through retail markets, headline inflation has averaged 1.8 percent so far this year, well below the RBI’s target band of 2-6 percent.

Kumar added that inflation not only continued to remain benign but the headline CPI declined further to 0.3 percent in October 2025, largely driven by declining food prices. It is in contrast to 2025:Q2, when the growth was slowing, but inflation was staying at relatively high-levels.

“The celebrations of this ‘goldilocks moment’ (high growth, low inflation), however, were tempered by trends for October 2025 published only a few days later, suggesting that the economic activity had peaked in Q2,” Kumar noted.

Further, he said that RBI’s Industrial Outlook Surveys also suggest moderation in business assessment and expectations.

“It is clear that the geopolitical uncertainties, including those concerning the high Trump tariffs imposed on India, and the possible delays in concluding negotiations to address them, have started to hurt the business sentiment,” Kumar said.

He added that the Trump tariffs are particularly affecting the labour-intensive industries such as textiles and garments, leather goods, gems & jewellery, processed food products like shrimp that have a higher exposure to the US market. “These are also the sectors that are dominated by MSMEs and account for a disproportionately larger share (around 40%) of jobs in the manufacturing sector.”

He also added that the MPC found a case for supporting growth through demand stimulus to preserve the growth momentum through the H2 of the current year. The growth stimulus should be coordinated across fiscal and monetary policy actions to be effective.