Economy

Growth supported amid inflation fight: FM Nirmala Sitharaman

Bloomberg | | Updated on: Apr 25, 2022
Finance Minister Nirmala Sitharaman

Finance Minister Nirmala Sitharaman

Says the multiplier effect from supply-side spending can keep fueling the rebound from the pandemic

India’s economic growth will continue being supported by fiscal spending while the Central bank begins a pivot toward fighting inflation, according to Finance Minister Nirmala Sitharaman.

The multiplier effect from supply-side spending can keep fueling the rebound from the pandemic, which will balance the Reserve Bank of India’s plan to begin moving toward removing accommodative monetary policies, Sitharaman said in an interview Friday

“The growth is not getting compromised, because the policies of the government have also been in such a way that supply-side supports have continued” including infrastructure investments, she said. “So if we are giving this good, solid push from the government side, the Reserve Bank looking at slightly moving towards management of inflation would not hurt growth.”

Sitharaman also defended the RBI’s timing to pivot toward inflation, after staying focused on growth, saying “there was consciousness on part of the RBI that we shouldn’t do anything that will hurt the recovery from the pandemic.”

Her comments follow the decision earlier this month by the RBI to begin signaling the coming end of pandemic-era loose policy and prioritising taming consumer prices, which has been growing above the 6 per cent top-end of its target range during the January-March quarter.

Bringing prices under control

If the inflation readings remain above 6 per cent for the next two quarters, a scenario most analysts see likely, India’s central bank is required by law to explain to the government why it missed the target, and suggest steps to bring prices under control within a specified period.

Sitharaman said in a separate interview Friday on Bloomberg Television’s “Balance of Power” with David Westin that the economy is “looking very sound” and the recovery from the pandemic “seems to be sustainable.” She added that the 7.2 per cent growth forecast from the RBI for the current April-March fiscal year was her “bottom line” and said that 8 per cent growth “seems absolutely possible.”

In its April 8 policy statement, the RBI revised its inflation forecast for the fiscal year to 5.7 per cent, from 4.5 per cent seen in February. It also dropped a pledge to keep policy loose “as long as necessary” for the first time since late 2019. 

RBI criticised

The RBI earlier this year was criticised by some analysts as being “behind the curve” as major central banks led by the Federal Reserve, as well as some emerging market peers, responded to rising inflation by increasing rates. Analysts now expect the RBI to raise rates from June as inflation rose to a 17-month high of 6.95 per cent in March.

Sitharaman said she didn’t think the central bank was too slow in moving, partly because oil prices remained elevated for longer than expected and because there was a sensitivity among all policymakers to avoid doing anything that may risk the recovery. “It had to be a careful balancing,” she said. “They’re being sensitive to the developments on the ground.”

Published on April 25, 2022
COMMENTS
This article is closed for comments.
Please Email the Editor

You May Also Like

Recommended for you