Growth Being Sacrificed, Inflation On Downward Trend: External MPC Members
The other members of the RBI's monetary policy committee voted for a status quo due to the elevated food inflation and concerns of spillover effects.
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Ashima Goyal and Jayanth Varma, external members of the Reserve Bank of India's monetary policy committee, expressed concerns on Thursday over the "growth sacrifice" because of a restrictive monetary policy,
Growth is robust currently. There was a softening in the first quarter, which could be related to the elections, Goyal in a conversation with NDTV Profit after the release of the minutes of the MPC resolution. "However, we have room to grow further without raising inflation."
"Currently, we are below potential output. Given the high unemployment and given that this is our catch-up period, we should try to grow at the maximum we can with macro stability," she said.
The economy has to grow a lot faster at times when the labour force is expanding. There are two ways to look at growth, according to Varma. "One, that we are the fastest-growing major economy. But the other question is what is the rate of growth that India needs? Where do we stand in the demographic transition? And what was the growth rate that other countries had at the same point in their demographic transition."
In his minutes too, Varma said one of the things that was probably holding back growth was the excessively restrictive monetary policy. "We need to be on the guard against that and avoid excessive growth sacrifice."
While Goyal and Varma both continued to vote for a 25-basis-points rate cut, the other members of the MPC voted for a status quo due to the elevated food inflation and concerns of spillover effects.
"Inflation expectations need to be kept anchored. Spillovers of food inflation to core have to be avoided," RBI Governor Shaktikanta Das said. "At such a crucial juncture, steady growth impulses are allowing monetary policy to unambiguously focus on supporting a sustained descent of inflation to the target."
Goyal and Varma said that inflation is showing signs of a downward trend. The MPC should give forecasts of core as well as headline inflation, Goyal said.
