Inflation management in India encompasses many processes outside of monetary policy. Therefore, to effectively manage inflation, monetary and fiscal policies must work in parallel, Union Finance Minister Nirmala Sitharaman said on Thursday.
“Inflation management in India is an exercise of so many different activities, the majority of which are outside of monetary policy, even in the current circumstances,” Sitharaman said at an event hosted by the Indian Council. for research on international economic relations (ICRIER).
Sitharaman said that while the Reserve Bank of India will have to synchronize its monetary tightening measures with those of other central banks, it may not be synchronized as much as developed central banks.
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“I don’t prescribe anything to the Reserve Bank, I don’t give any direction to the central bank. But it’s the truth – India’s solution to managing the economy, part of which is also managing inflation, is an exercise where fiscal policy and monetary policy have been at work,” said she declared.
Sitharaman said managing inflation cannot be left to monetary policy alone, “which has proven to be totally ineffective in many countries.”
“The central bank, its instruments, its management of interest rates form a very critical part of it, but it cannot be the one and only,” added the Minister of Finance.
India’s consumer price index (CPI)-based inflation in July was the lowest in five months, helped by cooling global commodity prices and lower food prices in the national level, but was still above the medium-term objective of the Monetary Policy Committee, thus justifying the recent monetary tightening. by the RBI.
Sitharaman said India’s decision to buy discounted crude oil from Russia was part of its inflation management policies.
“Our total import from Russia was probably 2% or sometimes even less, it went to almost 12-13% in a few months,” she said, adding that other countries like the Japan and Italy were also following suit and buying Russian crude despite sanctions.
The finance minister said states will also have to do their part to reduce prices at the local level, setting an example that states that have not reduced their duties and taxes on petrol and diesel now have higher inflation to the national average.
“If state inflation is also to be attributed to the Indian government, we must have a way to work together to manage inflationary issues,” Sitharaman said.
“It is impossible for inflation to be managed solely by the Centre. And when states fail to take enough action, this part of India suffers from a lack of relief from the stress of inflation. Exogenous factors affect both the Center and the States,” said the Minister of Finance.