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The combined effect of the government’s fiscal policy and the Reserve Bank of India’s monetary measures would help boost consumption and private investments and thereby accelerate economic growth, finance minister Nirmala Sitharaman said on Saturday. Addressing the media after a post-Budget meeting with the central bank’s board in Delhi, Sitharaman said the triggers of consumption-driven growth cycle are clearly being felt by a number of firms that have to make investment decisions. “I see this as a positive sign and with (Friday’s rate cut by the RBI), things can move together in alignment,” she said. The minister also stressed the government would continue to work in a well-coordinated fashion with the RBI to prop up growth and contain inflation.
RBI governor Sanjay Malhotra said market forces decide the value of rupee with respect to the US dollar and the central bank is not worried about day-to-day movement of the currency value. The central bank focuses on the value of the rupee in the medium to long term, he said. On the impact of the depreciation of the rupee against the US dollar on price rise, the governor said a 5% fall in rupee’s relative value impacts domestic inflation to the extent of 30-35 bps.
The governor added that the RBI will be agile in responding to the liquidity needs of the banking system, both transient and durable.
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In the Budget for 2025-26 presented on February 1, the Union government lowered its fiscal deficit estimate for FY25 to 4.8% of GDP from 4.9%. It also budgeted a 4.4% deficit for FY26, seen as helping anti-inflationary measures. On its part, the RBI’s monetary policy committee on Friday announced a 25-basis point cut in the repo rate, bringing it down to 6.25%, marking the first reduction in nearly five years.
Analysts expect headline inflation around 4.5% on year in H1FY25 on the back of easing food inflation, which should allow the RBI to follow up Friday’s cut with an additional 25bps policy repo rate cut in the April meeting, with risks skewed towards a slightly deeper easing cycle.
Sitharaman said whether it is inflation or growth, monetary policy and fiscal policy are acting together for the welfare of the economy and people, without encroaching on each other’s territory. “In the coming times also, RBI and government will work in a well-coordinated manner keeping our growth impulses in mind,” she said.
The RBI has pegged its real GDP growth forecast for FY26 at 6.7% compared with the Economic Survey’s estimate of 6.3% to 6.8%.
“We will be very, very watchful, alert and very nimble and agile in whatever are the requirements of the banking system to provide liquidity, both transient, overnight, as well as more durable liquidity,” Malhotra said. He added that RBI took on board the current rupee-dollar rate while working out growth and inflation projections for the next financial year.
According to Sitharaman, the Budget announcement on customs duty rationalisation is a work that has been on since the past two years. The statement came as many see the move as a preemptive one, in the backdrop of the tariff threats by the US. “So we had rationalised some (tariffs) even two years ago. We also set certain norms saying ever-greening is not going to happen on anti-dumping duties, which had played a big role in giving some kind of a protection for India’s own manufacturing capabilities,” she said.
Sitharaman said with every such expiry date (for anti-dumping duties) getting closer, the government will review it thoroughly, and only in exceptional cases duties will be extended. “We want to make India a lot more investor-friendly, trade friendly, and at the same time, balance it with Atmanirbhar Bharat where we need to have production, particularly through the MSMEs. We will provide the tariff protection as required by the industry,” the minister said.
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