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Union Government’s Priority is to Tame Inflation for Sustained Economic Growth
New Delhi: The Union government’s priority is to tame inflation for sustained economic growth, though elevated interest rates may act as a dampener to global economic recovery, finance minister Nirmala Sitharaman said on Friday.
Persistent high inflation will crimp demand, Sitharaman said and added that the tendency to use interest rates as the only solution to tackle inflation has its own downside.
Inflation has impacted major economies, and central bankers, especially in the developed world, have moved to address the issue by tightening interest rates.
India’s retail inflation shot past estimates to hit a 15-month high of 7.44% in July as food and vegetable prices surged, breaching the Reserve Bank of India’s (RBI’s) inflation target range for the first time since February. The central bank’s Monetary Policy Committee (MPC) had earlier this month voted to leave the repo rate unchanged at 6.5%. Repo rate is the interest rate at which the RBI lends to commercial banks.
Boosting Investments and Fiscal Deficit Restraint
Sitharaman also said boosting investments to spur growth is a way to achieving sustained growth, so investments in physical assets need to be raised and be driven by the public sector and complemented by the private sector.
She said fiscal deficit needs to be restrained, without which inflation won’t be completely defeated. The Centre aims to lower the fiscal deficit or the difference between the government’s income and spending to 5.9% of the gross domestic product during FY24. Fiscal deficit in the fiscal first quarter stood at ₹4.51 trillion, comprising 25.3% of annual estimates.
Diversification of Supply Chains and Financing Climate Change
The minister emphasized that diversification of supply chains will be essential for sustaining post-pandemic global economic recovery. She said financing climate change will be another key factor for sustaining global economic recovery.
Free Trade Agreements and Electric Vehicle Policy
Sitharaman further said a free trade agreement between India and the UK is close to being concluded, while similar negotiations with Canada have been progressing well. She also addressed speculations about a new electric vehicle policy, stating that there is no proposal in front of her at the moment.