With the government having undertaken significant fiscal measures, including major tax reliefs to boost consumption and demand, in the Union Budget 2025-26, finance secretary Tuhin Kanta Pandey said he hoped that the Reserve Bank of India (RBI) would align its monetary policy to achieve the desired economic outcome.
The comment comes ahead of the RBI’s upcoming monetary policy committee (MPC) meeting, where decisions on interest rates will be closely watched. Pandey emphasised that monetary and fiscal policies should not work at cross purposes but rather complement each other to ensure balanced economic growth.
"We feel that monetary and fiscal policy should move in tandem, not at cross purposes. If we really want to stimulate beyond a certain level without caring for the fiscal deficit, it will add another inflation spiral, which will then get another reaction from the regulator in a different way. That would prevent us from achieving the outcome we want," Pandey said in an interview with Moneycontrol.
He cautioned that while inflation may temporarily support growth, it is unsustainable in the long run.
"Inflation doesn’t help in sustained growth. It may do so for a while, but then it claws back growth very quickly. Our fiscal consolidation is in place – that’s one imperative we have kept in mind. We are on a gliding path for our fiscal deficit. Inflation is waning, and if the regulator feels it is the right time to act, they will," he said.
The fiscal deficit for FY25 has been pegged at 4.8 percent of GDP and at 4.4 percent for FY26, Union finance minister Nirmala Sitharaman said on February 1 during her Budget speech.
In December 2024, Consumer Price Index (CPI) inflation rate was 5.22 percent year-on-year. This was a decrease from 5.48 percent in November 2024.
Balancing Growth and Inflation
The finance secretary emphasised the importance of striking a balance between growth and inflation.
"We do have conflicting things. Balancing competing priorities is what we have to do in the budget and every economic decision-making process. It’s a balancing act," he said.
He pointed out that the government has taken both demand- and supply-side measures to manage inflation, particularly food inflation, which remains a concern due to structural issues in agriculture.
"On the budget side, we have looked at both the demand and supply sides, taking several measures to help us manage our core worry, which is food inflation. This is more persistent than core inflation due to climate and structural issues in agriculture, particularly in pulses and oilseeds," he said.
With fiscal measures in place, Pandey said the next steps would depend on the RBI’s assessment of economic conditions.
"It’s for the RBI to see, and they will do their best within their mandate," he concluded.
No Spike in Oil Prices
Pandey ruled out the possibility of a sharp rise in global crude oil prices, citing stable petroleum supplies.
"We don’t anticipate an oil price spike. Supplies are expected to remain good," he said.
However, he acknowledged that external factors, particularly exchange rate fluctuations, could pose risks.
"There is always a risk of inflation coming back. To some extent, there could be imported inflation, depending on what happens with the exchange rate. If capital flows get reversed from emerging markets due to global uncertainty, it will impact the exchange rate," he explained.
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