Fiscal and monetary authorities are initiating steps to curb inflationary pressure and drive up growth, economic affairs secretary Ajay Seth said on Wednesday, when the central bank raised the benchmark lending rate by 50 basis points (bps).
The Reserve Bank of India (RBI) also raised its inflation projection for FY23 to 6.7% from its April forecast of 5.7%, while retaining its estimate of the country’s GDP growth at 7.2% for this fiscal.
“There cannot be any copy-book solution (to inflation). As new information emerges, it’s analysed and whatever it takes to meet those challenges, those measures will be taken,” Seth said on the sidelines of an event here.
Importantly, the RBI on Wednesday pegged inflation forecast for Q1 at 7.5%, which means price pressure is unlikely to ease meaningfully this quarter, despite recent government steps to ease supply-side bottlenecks. Retail inflation hit an eight-year peak of 7.79% in April.
“There are domestic challenges and larger global challenges. Whatever it takes for monetary and fiscal authorities, those actions are being taken. We (are working) to moderate the inflation and, at the same time, keep the growth efforts as earlier,” the Department of Economic Affairs (DEA) secretary told reporters, responding to queries on the interest rate hike. The RBI had, in an out-of-cycle move, announced a repo rate hike of 40 basis points in May.
The government and the central bank are also working on the management of the rupee, which has depreciated against the dollar in recent weeks, responding to an interest rate tightening by the US Federal Reserve and other external headwinds. The government, the secretary said, is moving on the path of fiscal consolidation.
It is aiming to rein in fiscal deficit at the budgeted target of 6.4% in FY23, against 6.7% in FY22, despite additional spending commitments and fuel tax cuts. This will offer some comfort to the central bank as it battles to curb high inflation.
Look beyond current inflation woes: CEA
Speaking at the finance ministry’s iconic week celebrations, ‘Azadi ka Amrit Mahotsav’, chief economic advisor V Anantha Nageswaran stressed the need to shun excessive focus on the current set of problems.
“I also implore you to look beyond current concerns about inflation… Some of these structural reforms… such as the goods and services tax and the Insolvency and Bankruptcy Code might have been temporarily overshadowed by external events such as the pandemic and now the geopolitical conflict,” Nageswaran said. “However, once these clouds recede, they will begin to manifest and enhance India’s growth.”
He also asserted that the medium-term fundamentals of the economy remain strong and India is much better placed than many others to weather the latest set of challenges.