Monetary policy has limits, fiscal support key for growth: Saugata Bhattacharya
The Reserve Bank of India’s August 6 minutes highlight that monetary policy alone cannot solve India’s current economic challenges, said Saugata Bhattacharya, Senior Fellow at the Centre for Policy Research.
Bhattacharya explained that rate cuts may have a limited impact in the face of supply-side shocks and trade disruptions. “The problem is that we don’t know how much further easing on monetary policy is likely to help,” he noted, stressing that fiscal policy and targeted government support may be more effective.
He also warned that household savings are at risk if interest rates fall too sharply, as deposits have already been shifting from stable retail flows to more volatile wholesale sources. On the global front, he said savings pools are shrinking with central banks tightening, which means India must rely more on domestic savings to fund its growth ambitions.
At the same time, fiscal measures like GST cuts and income tax relief are providing a cushion by placing more funds in the hands of households, helping offset external headwinds. Bhattacharya backed the RBI’s neutral stance, saying it gives policymakers the flexibility to either hold or cut depending on how conditions evolve. “Neutral means giving you the flexibility to respond as the situation evolves,” he explained.
Also Read: RBI MPC minutes: Policymakers flag caution; external uncertainty, tariffs remain key risks
He described the current position as a hawkish pause, not a tightening, given uncertainties around trade tariffs and global growth. While tariff shocks could weigh on exports, MSMEs, and jobs, Bhattacharya stressed that the RBI is committed to a data-driven approach, adding, “There cannot be a pre-committed path for rate action.”
For the entire interview, watch the accompanying video
Post Comment