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Informist, Wednesday, Aug. 6, 2025

 

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--RBI Malhotra: Both core and headline inflation important 
--RBI Malhotra: Target is certainly headline inflation 
--RBI Malhotra:Will release discussion paper on flexible inflation targeting 
--RBI Malhotra:Will seek public views on flexible inflation target framework 
--RBI Malhotra: Won't venture to say inflation can't be lower than forecast 
--RBI Malhotra: Inflation can be downwards or upwards from projections 
--RBI Malhotra:Don't see impact on inflation if crude oil import mix changes 
--RBI Malhotra: Food inflation deviation is 3%, less in headline inflation 
--RBI Gupta: Tariff impact on India inflation to be very limited 
--RBI Malhotra: Did not account for CPI weightage change in CPI FY27 forecast
--RBI Malhotra: Expect govt to take fiscal steps to contain crude oil fallout

 

NEW DELHI – Amid threats of more tariffs from the US, Reserve Bank of India Governor Sanjay Malhotra Wednesday said the impact of Washington's tariffs on India will be limited since New Delhi is "less dependent on the outside" insofar as inflation is concerned. Adding to Malhotra's remarks, Deputy Governor Poonam Gupta also said nearly half of India's inflation basket consists of food, which does not get negatively impacted directly by global developments.

 

"A significant part (of the CPI basket) also consists of non-tradables, which again, does not get impacted by global developments," Gupta said at the post-policy press conference. "So to that extent, a first-order direct impact of these evolving uncertainties on India's inflation is likely to be very, very limited."  

 

US President Donald Trump had on Jul. 30 announced 25% tariff on Indian goods shipped to the US, along with an additional unspecified penalty for India's procurement of military equipment and energy from Russia. The 25% tariff is set to kick in from Thursday. Earlier this week, he threatened to "substantially" hike the tariff on India for trading with Russia. It is unclear if he would further raise the 25% tariff or hike the penalty.

 

The exogenous risks to inflation come just when India's inflation has significantly softened with food prices staying benign, giving adequate policy room to the Monetary Policy Committee to support growth. Earlier in the day, the central bank slashed its headline inflation forecast for the quarter ending September by 130 basis points to 2.1% and lowered the projection for 2025-26 (Apr-Mar) by 60 bps to 3.1%.

 

The MPC noted that the average CPI inflation this fiscal is expected to remain significantly below the 4% target while growth has held up well with some pick-up expected in the coming festival season. Given these dynamics, the rate-setting panel kept the policy repo rate unchanged at 5.50% while also keeping the policy stance unchanged at 'neutral'.

 

Beyond tariffs, India presently faces Washington's clear displeasure with India's energy procurement from Russia, with whom India has maintained close economic ties for several decades now. While India has traditionally relied on Moscow for military equipment, New Delhi has become one of the biggest buyers of its crude oil since Russia's invasion of Ukraine in February 2022.

 

Analysts have said India may have to do away from Russian oil to escape Trump's repeated higher tariff threats which may significantly impact New Delhi's import bill and thereby add to inflationary pressures. Abating fears, Malhotra said the central bank does not see impact on inflation even if India's crude oil import mix changes. "Of course, crude is an important element in determining our inflation. But at the same time, let's keep two things in mind. It's not only Russian oil that we are taking. We are taking oil from many other countries to mix," he said. 

 

Further, Malhotra said the downward or upward impact of crude prices on inflation will depend on fiscal interventions by the government in the form of excise duty changes and tariffs, to mitigate any adverse shocks. The government has in the past cut excise duty on fuel to lower retail prices and insulate consumers from rising prices amid high inflation. 

Based on the current economic situation, the central bank Wednesday forecasted inflation to rise from January onwards, averaging 4.4% in Jan-Mar and 4.9% in Apr-Jun of FY27. The projection, however, does not take into account the possible change in weightage of the CPI basket, which the statistics ministry is working on. The Ministry of Statistics and Programme Implementation is undertaking a base revision exercise, revising the present base year of 2012 for CPI to 2024. Weights and item basket will also be changed during the process, derived from the Household Consumption Expenditure Survey FY23.

 

Speaking about the volatile food basket in the CPI basket and its transient impact on the headline inflation, Malhotra said that both core and headline inflation are important for the central bank, but the target of the MPC will certainly be headline inflation. In the past, there have been calls for India to target non-volatile core inflation rather than headline inflation. 

 

The central bank chief said while the inflation projection for Jan-Mar and Apr-Jun is significantly higher than the 2.1% projected for the ongoing September quarter and 3.1% for the December quarter, actual inflation can be downwards or upwards of the projections. "When we give projections, there are risks on both sides," he added. "I would certainly not venture to say that it cannot be lower than this."  

 

Regarding the flexible inflation targetting framework, which is up for review in FY26, Malhotra said RBI will release a discussion paper on the same seeking public comments. After receiving the comments, the central bank will advise the government on the framework, and the latter will take a final call on it, he said. 

 

The existing framework is set to lapse on Mar. 31, 2026. Under the monetary policy framework, the government has kept 4% as the CPI inflation target for Apr. 1, 2021 to Mar. 31, 2026, with the upper and lower tolerance limits of 6% and 2%, respectively. The government, in consultation with the RBI, determines the inflation target in terms of the CPI, once in five years.  End

 

Reported by Priyasmita Dutta

Edited by Tanima Banerjee

 

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