News

Published: Apr 6, 2023
Updated: Apr 6, 2023

RBI urged to prioritize inflation over growth by FinMin officials

The Reserve Bank of India (RBI) has been advised by finance ministry officials to prioritize bringing inflation down to within the mandated range of 2-6%, even if it means a reduction in economic growth. The RBI's mandate is to keep retail inflation at 4% within a band of 2 percentage points on either side.

Inflation concerns:

A senior government official has stated that the central bank should focus on combating inflation until it is within the tolerance level of 6%, even if it means a reduction in growth. The official cited elevated inflation levels as a possible impact on low-income strata. The RBI is due to review its monetary policy on Thursday. Inflation remains a major concern, with core inflation (excluding volatile food and fuel inflation) remaining above 6%.

Macroeconomic stability:

According to the official, India is currently in a comfortable position with regards to sustainable macroeconomic stability. Strong revenue collection has been reported, both on direct and indirect taxes, and the bank's balance sheet looks positive. However, the official emphasized the need for the RBI to pay attention to the inflation trend before changing its stance from 'withdrawal of accommodation' to 'neutral'.

Revenue collection:

Direct tax collection rose to Rs 16.61 trillion in 2022-23 (FY23), exceeding the Revised Estimates target by a small margin, according to provisional data released by the finance ministry. In addition, goods and services tax collection grew 22% to breach Rs 18 trillion in FY23, according to the finance ministry.

RBI forecast:

The RBI has projected retail inflation to average 5.3% in FY24, with the first quarter at 5%. However, experts predict that inflation woes are far from over, and the January-March quarter of FY23 may see average inflation of 6.3%. Aditi Nayar, chief economist at ICRA, predicts that a narrow majority of MPC members may vote for another rate hike in the April 6 monetary policy, taking the repo rate to 6.75%.

High Inflation priority - Finance Ministry

The RBI has been advised to pay attention to the inflation trend before changing its stance, and experts predict another rate hike in the upcoming monetary policy review. While India is in a comfortable position with regards to macroeconomic stability and revenue collection, inflation remains a key concern for the RBI.