New Delhi, February 4 (PTI) – Finance Secretary Tuhin Kanta Pandey addressed the nation's fiscal health and economic policies on Tuesday, highlighting the government's commitment to reducing the fiscal deficit and maintaining a non-inflationary Budget. He expressed optimism that the Reserve Bank of India (RBI) would coordinate its monetary policy with the government's fiscal measures to bolster economic growth.
Pandey noted that while a depreciating rupee might lead to higher inflation due to increased costs of imported goods, it also boosts India's export competitiveness. He pointed out that the government's fiscal deficit projections for both the current fiscal year (FY'24) and the next (FY'25) have been revised downwards. The fiscal deficit for FY'25 is now projected at 4.8% of GDP, a reduction from the previously forecasted 4.9%, while the deficit for FY'26 is expected to be even lower at 4.4%, also an improvement over prior expectations.
“We must remain committed to a fiscal discipline. The government’s policies are designed to complement the RBI's monetary actions. Both fiscal and monetary policies should work in harmony, not at cross-purposes,” Pandey said, underscoring the importance of synchronized efforts to ensure sustainable growth.
Pandey also emphasized the need for balancing inflation control with growth objectives. “While inflationary policies may yield short-term growth, sustained growth demands that we manage inflation effectively,” he remarked during a post-Budget interaction organized by Assocham.
The RBI’s Monetary Policy Committee (MPC) is set to begin a crucial three-day meeting on February 5, with policy decisions to be announced on February 7. When asked whether the MPC would consider a reduction in policy rates, Pandey refrained from speculating, stating, “The decision will be made by the MPC, and they are well aware of the current economic conditions."
Pandey also addressed concerns surrounding the weakening rupee, which hit a record low of 87.11 against the US dollar on Monday, before recovering slightly to close at 87.08 on Tuesday. He acknowledged that the rupee’s depreciation could contribute to imported inflation but reiterated that the RBI would closely monitor the situation. "The rupee operates in a free-float system, influenced by external factors. The RBI and the government are both vigilant," he said.
The Indian economy has been grappling with a slowdown, with growth forecast to reach a four-year low of 6.4% in the current fiscal year, according to data from the National Statistical Office (NSO). This slowdown has intensified calls for a reduction in benchmark interest rates.
Retail inflation, however, showed signs of moderation, easing to 5.22% in December from 5.48% in November, remaining within the RBI’s target range of 4% (+/- 2%).
The RBI has kept its policy rates steady at 6.5% since February 2023, primarily to contain inflationary pressures.
The coming days will be crucial as the RBI's decision on interest rates could have significant implications for the economy's trajectory in 2025.
Pandey noted that while a depreciating rupee might lead to higher inflation due to increased costs of imported goods, it also boosts India's export competitiveness. He pointed out that the government's fiscal deficit projections for both the current fiscal year (FY'24) and the next (FY'25) have been revised downwards. The fiscal deficit for FY'25 is now projected at 4.8% of GDP, a reduction from the previously forecasted 4.9%, while the deficit for FY'26 is expected to be even lower at 4.4%, also an improvement over prior expectations.
“We must remain committed to a fiscal discipline. The government’s policies are designed to complement the RBI's monetary actions. Both fiscal and monetary policies should work in harmony, not at cross-purposes,” Pandey said, underscoring the importance of synchronized efforts to ensure sustainable growth.
Pandey also emphasized the need for balancing inflation control with growth objectives. “While inflationary policies may yield short-term growth, sustained growth demands that we manage inflation effectively,” he remarked during a post-Budget interaction organized by Assocham.
The RBI’s Monetary Policy Committee (MPC) is set to begin a crucial three-day meeting on February 5, with policy decisions to be announced on February 7. When asked whether the MPC would consider a reduction in policy rates, Pandey refrained from speculating, stating, “The decision will be made by the MPC, and they are well aware of the current economic conditions."
Pandey also addressed concerns surrounding the weakening rupee, which hit a record low of 87.11 against the US dollar on Monday, before recovering slightly to close at 87.08 on Tuesday. He acknowledged that the rupee’s depreciation could contribute to imported inflation but reiterated that the RBI would closely monitor the situation. "The rupee operates in a free-float system, influenced by external factors. The RBI and the government are both vigilant," he said.
The Indian economy has been grappling with a slowdown, with growth forecast to reach a four-year low of 6.4% in the current fiscal year, according to data from the National Statistical Office (NSO). This slowdown has intensified calls for a reduction in benchmark interest rates.
Retail inflation, however, showed signs of moderation, easing to 5.22% in December from 5.48% in November, remaining within the RBI’s target range of 4% (+/- 2%).
The RBI has kept its policy rates steady at 6.5% since February 2023, primarily to contain inflationary pressures.
The coming days will be crucial as the RBI's decision on interest rates could have significant implications for the economy's trajectory in 2025.
