Finance Minister Nirmala Sitharaman emphasized the importance of coordination between the government’s fiscal policy and the Reserve Bank of India’s (RBI) monetary measures to drive economic growth. Speaking after a post-Budget meeting with the RBI board on Saturday, Sitharaman highlighted the growing momentum of consumption-driven growth and increased private investment.
She noted that the government’s policy efforts align with the RBI’s recent repo rate cut, adding, “The triggers of consumption-driven growth are clearly being felt. With Friday’s rate cut by the RBI, things can move in alignment.”
Sitharaman assured that the government and RBI will continue working in a well-coordinated manner to promote growth while managing inflation.
RBI’s Focus on Currency and Liquidity
RBI Governor Sanjay Malhotra explained that market forces determine the rupee’s exchange rate against the US dollar. The RBI is not overly concerned with daily fluctuations but focuses on the medium-to-long-term value of the currency.
Malhotra also discussed the impact of currency depreciation on inflation, stating that a 5% fall in the rupee’s value could raise domestic inflation by 30-35 basis points. He stressed that the central bank would remain agile in managing liquidity, addressing both short-term and long-term needs.
Budget 2025-26 Measures and Rate Cut
The Union government, in the 2025-26 Budget, reduced its fiscal deficit target to 4.8% of GDP for FY25 and 4.4% for FY26. This is expected to support anti-inflationary measures.
On Friday, the RBI’s Monetary Policy Committee announced a 25-basis point cut in the repo rate, lowering it to 6.25%, the first reduction in five years. Analysts expect headline inflation to ease to 4.5% in H1FY25, driven by lower food prices. This could pave the way for another 25-basis point rate cut in April.
Sitharaman reiterated that fiscal and monetary policies are working in tandem for the welfare of the economy. “In the coming times, the RBI and government will work in a well-coordinated manner, keeping growth impulses in mind,” she said.
Also read: RBI Facilitates Cross-Border Trade in Rupees
GDP Growth and Trade Policy
The RBI has forecasted real GDP growth at 6.7% for FY26, slightly higher than the Economic Survey’s estimate of 6.3% to 6.8%.
Malhotra noted that the central bank has factored in the rupee-dollar exchange rate while calculating growth and inflation projections for the next fiscal year.
On trade policy, Sitharaman addressed concerns over customs duty rationalization, explaining that the government had been reviewing and adjusting tariffs over the past two years. This included tightening rules on anti-dumping duties to reduce protectionism and encourage investment.
“We want India to be more investor-friendly and trade-friendly while balancing this with Atmanirbhar Bharat objectives,” she stated. The minister added that tariff protection would continue where necessary, particularly for MSMEs.
