New Delhi: Finance Secretary Tuhin Kanta Pandey on Tuesday said the government has taken measures to lower fiscal deficit and delivered a non-inflationary Budget, and hoped that the RBI’s monetary policy will work in tandem with fiscal policy to support growth.
He also said that although rupee depreciation increases inflation on imported inputs, it also adds to export competitiveness.
Pandey said that the government has bettered its fiscal deficit projections for the current fiscal as well as the next. The fiscal deficit for FY’25 has been pegged lower at 4.8 per cent of GDP, lower than budgeted 4.9 per cent, while for FY’26 the deficit is projected to be 4.4 per cent, lower than what was given in the consolidation roadmap.
“It is very important to be very clear that we (government) have to remain within a certain fiscal regime. We have, to that extent, aided the monetary authorities to say that if they (RBI) have to do what they have to do, we are supportive. The fiscal policy and monetary policy need to work in tandem not at cross purposes,” Pandey said.
The Secretary said the economy would reap a lot more benefits with monetary easing and keeping inflation under control.
“Inflationary policies can really work only in the short-run in terms of pushing growth. If we have to have sustained growth, we need to have a good grip on inflation. That’s the balancing that we need…,” Pandey said at an Assocham post-Budget interaction.
The monetary policy committee (MPC) of the Reserve Bank of India (RBI) will begin its three-day meeting on February 5. The MPC will announce its policy decisions on February 7.
To a question on whether the Monetary Policy Committee will decide to cut policy rates, Pandey said “I think it’s a call that MPC will take. They are seized of the situation. They will take a call.”
Asked if depreciating rupee could lead to a concern on the inflation front, he said: “there are other factors that need to be taken into consideration by the RBI. Of course, the depreciation also brings to some extent imported inflation, but it also adds to export competitiveness to products”.
On Monday, the rupee plunged 49 paise to close at an all-time low of 87.11 against the US dollar. The rupee recovered 3 paise to close at 87.08 (provisional) against US dollar on Tuesday, as the American currency index retreated from its elevated level after President Donald Trump agreed to pause tariffs on Mexico and Canada.
“Rupee is in a free-float system, external things are working. The RBI is watching, we are watching,” Pandey said.
With the economic growth slowing to 4-year low of 6.4 per cent in current fiscal, as per NSO data, there is a growing clamour for a cut in benchmark policy rates.
Retail inflation in December eased to 5.22 per cent, from 5.48 per cent in November, and remained within the RBI’s tolerance band of 4 per cent (+/- 2 per cent).
RBI has held policy rates steady at 6.5 per cent since February 2023 to control inflation.
