Ashima Goyal, an MPC member of RBI, suggests the central bank should focus on targeted interventions to support growth while maintaining price stability.
By: Priyanshi Mishra
Ashima Goyal, a member of the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC), has cautioned that any further tightening of monetary policy could result in economic growth falling to 5%.
Goyal, who is also an economics professor at the Indira Gandhi Institute of Development Research, made the remarks following the MPC’s latest meeting. She stated that while the economy was showing signs of recovery, it was still fragile, and any excessive tightening of policy could hurt growth.
The RBI has already taken several steps to curb inflation, including hiking interest rates and reducing liquidMPC
city in the banking system. However, Goyal suggested that the central bank should adopt a more cautious approach to avoid hindering economic growth.
Goyal’s warning comes amid concerns about India’s economic recovery, which has been hampered by the ongoing COVID-19 pandemic. While India’s GDP grew by a record 20.1% in the April-June quarter of 2021, this was largely due to a low base effect and a surge in government spending.
Goyal emphasized that the current economic recovery was still fragile and that any further tightening of policy could be detrimental to growth. She suggested that the RBI should instead focus on targeted interventions that support growth while maintaining price stability.
Her comments echo the sentiments of other economists who have called for a more balanced approach to monetary policy. Inflation in India has remained stubbornly high, with consumer prices rising by 5.3% in August. While the RBI has projected that inflation will ease in the coming months, it has also warned that there are upside risks to its forecast.
The central bank has also faced criticism from some quarters for its decision to maintain an accommodative monetary policy stance, despite concerns about inflation. However, Goyal argued that the RBI needed to balance its inflation-fighting mandate with its responsibility to support growth.
Goyal’s warning has sparked a debate among economists and policymakers about the appropriate stance for monetary policy in the current environment. While some have called for further tightening to rein in inflation, others have argued that the RBI needs to prioritize growth to support the economy’s recovery.
India’s economic growth is closely watched by investors and policymakers around the world, given its status as one of the fastest-growing major economies. The pandemic has had a significant impact on the country’s economy, with GDP contracting by a historic 7.7% in 2020. While the economy has shown signs of recovery, it remains vulnerable to external shocks, including the ongoing pandemic and global economic uncertainty.
The RBI has taken several steps to support growth, including providing liquidity to the banking system and implementing a series of targeted measures to support small and medium-sized businesses. However, Goyal’s warning suggests that the central bank may need to adopt a more cautious approach to avoid derailing the recovery.
In conclusion, the warning by Ashima Goyal, a member of the RBI’s MPC, that any further tightening of monetary policy could push India’s economic growth down to 5%, has raised concerns about the country’s economic recovery.
The central bank has already taken steps to curb inflation, but some economists are calling for a more balanced approach that prioritizes growth. The ongoing pandemic and global economic uncertainty continue to pose significant risks to the Indian economy, and policymakers will need to tread carefully to support a sustainable and inclusive recovery.
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