There is a clear message of comfort on the inflation front and that this is the time to stimulate growth, say some of the leading economists and bankers. Since some have been involved with policy -making in the past were not willing to be named. Clearly, as they point out, a 50 basis point (bps) cut after two consecutive 25 bps cuts has a much different message than the routine 25 bps that the industry was expecting.
To some of the seasoned bankers the measures announced in the monetary policy were rather straightforward decisions because inflation is below the 4 per cent target, the prospects on the agriculture front are reasonable therefore the concern over the past two years on prices seems to have ebbed to some extent. Also, there seems to be expectation that the oil and commodity prices may also see a declining trend triggered by demand depression globally. In addition, some feel there could be added comfort on inflation because of potential dumping by China in India given its inability to export to the United States.
So, while there seems to be building comfort on the inflation front, concerns on the growth prospects and questions around whether growth slowdown has been structural or seasonal were being raised in this period and therefore this clear signal to stimulate growth seems apt and timely.
While this would come across as reasons for comfort for the industry, there seems no denying that happenings in the Indian economy cannot stay removed from the global environment and the prospects for exports. The concerns on this from articulated by RBI governor Sanjay Malhotra in his statement: “Trade policy uncertainty however continues to weigh on merchandise exports prospects, while conclusion of free trade agreement (FTA) with the United
Kingdom and progress with other countries should provide a fillip to trade in goods and services. Spillovers emanating from protracted geopolitical tensions, and global trade and weather-related uncertainties pose downside risks to growth.” Taking all these factors into consideration, he says, the “real GDP
growth for 2025-26 is projected at 6.5 per cent with Q1 at 6.5, Q2 at 6.7, Q3 at 6.6 and Q4 at 6.3 per cent.” It is perhaps with good reason that he says: “The inflation outlook for the year is being revised downwards from the earlier forecast of 4.0 per cent to 3.7 per cent. Growth, on the other hand, remains lower than our aspirations amidst challenging global environment and heightened uncertainty.”
Economists often also remind that the RBI policy acts with a lag of 12 to 18 months and therefore there is reason to remember that there is a playing for the long-term clearly also in the message. All eyes would now be on how the industry, which some argue has underutilised capacities responds and how consumers, who could now await the prospects of reduced EMIs react.