More Stories

Informist, Thursday, Aug. 28, 2025

 

--MPC Bhattacharya: India growth above 6.5% may not be achievable near term

--CONTEXT: MPC external member Saugata Bhattacharya's comments in interview

--MPC Bhattacharya: Tough to quantify impact of 50% US tariffs on growth

--MPC Bhattacharya: See progressive effects on CPI from likely GST reforms 

--MPC Bhattacharya: Little scope for forward guidance on further rate cuts

--MPC Bhattacharya: More easing to depend on evolution of inflation, growth

--MPC Bhattacharya:RBI operating rate should be consistent with policy stance

 

By Pratiksha

 

MUMBAI – GDP growth of more than 6.5% may not be achievable in the near term for India owing to the current external environment, according to Saugata Bhattacharya, external member of the Reserve Bank of India's Monetary Policy Committee. "Obviously, we should aim for growth higher than 6.5%," Bhattacharya said in an email interview to Informist. "This might not be achievable in the near term given the current external environment, but the government has been working hard to push the reforms envelope, fiscal policy has certainly done significant heavy lifting."

 

Bhattacharya's remarks are in the context of RBI Governor Sanjay Malhotra's comment at the August post-policy conference that India should aspire for a growth rate higher than 6.5%. The central bank's estimate is India's GDP will grow 6.5% in 2025-26 (Apr-Mar). Malhotra's comments on growth in August were less bullish than his comments in June when he had said the aim should be to grow India's GDP by 8% a year.

 

After cuts of 100 basis points between February and June, the RBI's rate-setting panel unanimously voted to keep the benchmark rate unchanged at 5.50% at its August meeting. Notably, in June, when the committee opted for a jumbo 50-bps rate cut, Bhattacharya was the outlier and voted for a cut of only 25 bps.

 

The external environment has since turned bleak for India as US President Donald Trump has imposed punitive tariffs on imports from India. Trump has slapped an additional 25% punitive tariff on Indian goods as a punishment for buying crude oil from Russia, on top of a 25% tariff announced earlier. Bhattacharya said it was tough to quantify the extent of the impact on growth if the 50% US tariffs on India continue.

 

"...there will be a likely impact (of US tariffs) through various channels. The direct one is obviously the partial loss of an export market, and those sectors which operate on volumes in a low margin exports," he said. "The secondary impact will be through factory and enterprise closures and cutback, resulting in job layoffs. The tertiary impacts will be the loss of disposable incomes and demand, which might in turn delay some investment decisions. The resultant growth slowdown, and a fiscal offsetting response might affect some foreign capital flows."

 

Minutes of the August policy showed Bhattacharya had said that if US tariffs persist, there is likely to be an adverse impact on India's growth in FY26 and probably beyond. He, however, is sure that India's potential growth will increase as structural reforms advance and the external balance improves.

 

Bhattacharya expects the proposed Goods and Services Tax reforms to have "progressive effects on inflation" in the long term. "Over a longer period, the increase in household and enterprise disposable incomes and hence a potential boost for demand, production, investment and growth, are likely to have progressive effects on inflation," he said.

 

In his Independence Day speech, Prime Minister Narendra Modi announced that the government will announce GST reforms by Diwali. The Centre has proposed moving to a simple tax structure with just two slabs--standard and merit--from the current four-rate structure of 5%, 12%, 18% and 28%. The two new rates are expected to be 5% and 18%.

 

When asked if it is appropriate to look at the RBI's Jan-Mar FY26 and Apr-Jun FY27 inflation forecasts based on the current series when the new CPI series is expected to bring down the share of food and in turn, food inflation, Bhattacharya said, "...as and when the new CPI series come into effect, we can change the forecasts. Monetary policy responses are taken based on forecasts of the medium term based on current information sets." The government is currently working on revising the CPI series. The new series with 2024 as the base year, updated from 2012, is scheduled to be released in February.

 

The former Axis Bank chief economist said there is little scope for forward guidance on further policy easing as the direct, secondary, and tertiary impacts of various economic and policy unknowns would need to be understood first. "The extent of space for further policy easing will depend upon the evolution of inflation and growth, within the framework of the macro-financial environment defined by the nature of open economy macroeconomics," he said.

 

However, Bhattacharya said that for an effective stimulus for the economy, monetary policy easing and strong liquidity support need to be coordinated with other fiscal, trade, and manufacturing policy measures. Bhattacharya is of the view that the central bank's operating rate should be consistent with the policy stance.  End

 

Edited by Avishek Dutta

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd. by NSE Data & Analytics Ltd., a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt. Ltd.

 

Informist Media Tel +91 (22) 6985-4000 

Send comments to feedback@informistmedia.com

 

© Informist Media Pvt. Ltd. 2025. All rights reserved.