MPC member Ram Singh tells Kshipra Petkar why India can sustain growth above 7.5% without triggering inflation. Citing structural reforms, rising productivity, and subdued price pressures, he argues that potential growth has increased, the output gap may still be negative, and the easing cycle is not yet over. Excerpts:
You suggest the economy can sustain growth above 7.5% without inflationary pressure. What indicates that India’s potential growth has structurally increased?
I believe India’s potential growth has risen to above 7%, with the possibility of reaching 8%. Sustained public investment in physical and digital infrastructure, combined with manufacturing and logistics reforms, has improved the economy’s efficiency. The scale of digitalisation — including UPI transactions exceeding 15 billion per month — reflects deeper formalisation and productivity gains.
Regulatory reforms have also mattered. The decriminalisation of over 3,800 provisions and the reduction of nearly 42,000 compliances have eased frictions for businesses, enabling faster scaling. These changes appear to have improved capital productivity; analyses suggest that the incremental capital-output ratio (ICOR) has declined, implying that the same investment now generates more output.
Six consecutive quarters of 7%+ GDP growth, alongside upward revisions by international agencies, support the view that potential growth has strengthened.
Despite 7%+ growth, you believe the output gap may still be negative. What supports this assessment?
Strong real growth has not been accompanied by inflationary pressure. Private Final Consumption Expenditure has risen to 61.5% of GDP in FY26 — the highest share in over a decade — yet there are no signs of overheating. Nominal GDP growth has also moderated.
CPI inflation for FY26 is projected at 2.1%, well below the 4% target. In Q1 and Q2 of FY27, inflation is expected to remain significantly below 4%, after accounting for a 60–70 basis point impact from precious metal prices. Core CPI (excluding metals) has stayed below 4% for the last eight to nine quarters.
With the economy growing above 7.4% on average over the past five quarters and inflation still subdued, the data suggest that supply conditions have improved and that the output gap may not yet have closed. The forthcoming GDP series should provide additional clarity.
Given the divergence between headline and core inflation, should monetary policy place greater weight on core?
The Monetary Policy Committee (MPC) targets headline inflation, but composition matters. Monetary policy affects components differently, so both headline and core indicators are relevant for assessing underlying pressures.
Under the new CPI series (Base Year 2024), the divergence between headline and core inflation is expected to narrow, partly due to revised weights. In January 2026, headline inflation under the new series stood at 2.75%, while core inflation (excluding food, fuel, and light) was 3.4%, reducing the divergence from 1.6 percentage points to 0.65.
A more representative basket should provide clearer signals about underlying demand conditions.
You supported a status quo on the repo rate but an accommodative stance. What would justify the next rate cut?
Monetary policy decisions must be data-driven. The new CPI series offers improved insight into inflation dynamics. A rate cut would become appropriate if incoming data confirm that inflation and its expectations remain benign with favourable growth-inflation dynamics.
The transmission of earlier easing also matters. Since February 2025, the repo rate has been reduced by a cumulative 125 basis points. Assessing how these cuts are passing through to credit and financial markets is important before further action.
How vulnerable is this growth-supportive stance to global shocks?
Geopolitical tensions, commodity price spikes, or tighter US monetary policy could create upside risks to inflation. However, India’s domestic demand resilience, infrastructure push, digitalisation gains, improved corporate and banking balance sheets, sizeable foreign exchange reserves, and fiscal prudence provide buffers against global volatility.
Is this the end of the easing cycle?
“Monetary policy is a conditional reaction function. Future decisions will depend on inflation and growth data. Given the reduced volatility under the new CPI series and subdued core inflation excluding precious metals, I do not believe the easing cycle has run its course.”