Finance minister Nirmala Sitharaman on Thursday said the exercise of taming inflation can’t be ‘singularly’ left to the monetary policy as it is dependent on many factors, most of which are outside its purview in the current context. She said the Reserve Bank of India has to synchronise monetary policy with the fiscal policy in order to contain inflation.
“The RBI will have to synchronise somewhat, may not be as much synchronised as the other Western developed countries will do,” Sitharaman said at an event organised by think-tank Icrier on Thursday. “I’m not giving any forward direction to the RBI.”
On Monday, the finance minister had said that the government and the RBI will together extend necessary stimulus to maintain economic growth momentum to create jobs, even as the Centre strives to maintain fiscal rectitude.
“Buying cheaper Russian crude and gas is also a part of inflation management. It (Russian crude) was less than 2% of India’s oil requirement (before the Ukraine war) and was ramped up to almost 12-13% within a couple of months,” she said.
Despite the risks of sanctions, India bought cheaper crude from Russia to check the rising auto fuel prices, given the dependency on imports to meet 85% of the country’s requirement.
Inflation in India has remained above the central bank’s 2-6% tolerance band for several months — 6.71% in July and 7.01% in June. On August 5, the RBI raised the repo rate by 50 basis points to contain inflation and take it to the pre-pandemic levels of 5.40%.
She said the solution to handling India’s economy, part of which is handling inflation also, is an exercise where the fiscal policy together with a monetary policy has to work. It can’t be singularly left to the monetary policy, which has proved ineffective in many countries, she added.
Given inflation is dependent on monsoons and vagaries of nature in India, the supply chain management over the last several years was aimed at ensuring the bulk of the population gets the necessary goods at an affordable price.
“Indian policymakers, much before the global disruptions, Ukraine war and Covid-19 happened, have gone through this drill (to strengthen supply chains) year after year,” she said
The policies of the current and past governments have played critical roles in creating buffer food stock, providing minimum support prices to farmers and creating storage capacity for perishables. Of late, it has imposed customs duties to make sure critical raw materials such as steel, iron and steel are available to MSMEs at affordable rates.
To cushion consumers from the impact of higher fuel prices, the Centre had also cut excise duty on auto fuels twice in recent months – November 2021 and May 2022 — which were followed by many states also cutting their state taxes. The minister pointed out that inflation at the states’ level was lower in states which cut sales tax on petrol and diesel compared to those that didn’t.