Budget 2025’s Fiscal Push: Finance Secretary Hopes RBI Will Align Policy to Boost Growth

resr 5paisa Research Team

Last Updated: 4th February 2025 - 12:50 pm

Listen icon

With the Union Budget 2025-26 laying out significant fiscal measures to spur economic growth, Finance Secretary Tuhin Kanta Pandey expressed hope that the Reserve Bank of India (RBI) would align its monetary policy to complement these efforts. Speaking ahead of the RBI’s upcoming Monetary Policy Committee (MPC) meeting, he stressed the importance of coordination between fiscal and monetary policies to achieve sustained economic growth without triggering inflationary pressures.

Fiscal and Monetary Policies Must Work Together

Mr. Pandey emphasized that fiscal and monetary policies should not work against each other but instead function in harmony. He cautioned that excessive stimulus without fiscal discipline could lead to inflationary spikes, which would, in turn, force regulatory interventions that could disrupt growth.

"We feel that monetary and fiscal policy should move in tandem, not at cross purposes. If we really want to stimulate beyond a certain level without caring for the fiscal deficit, it will add another inflation spiral, which will then get another reaction from the regulator in a different way. That would prevent us from achieving the outcome we want," he said in an interview with Moneycontrol.

He further highlighted that while inflation may temporarily boost growth, it is not a sustainable path in the long run. "Inflation doesn’t help in sustained growth. It may do so for a while, but then it claws back growth very quickly," Pandey explained.

Budget’s Fiscal Strategy and Inflation Outlook

The government has projected a fiscal deficit of 4.8% of GDP for FY25, aiming to bring it down to 4.4% in FY26. The Union Budget has also introduced tax reliefs and other fiscal measures to stimulate demand while keeping inflation risks in check.

In December 2024, India’s Consumer Price Index (CPI) inflation stood at 5.22% year-on-year, easing from 5.48% in November. Pandey reiterated that balancing inflation and growth remains a core challenge, and fiscal discipline is crucial to ensuring economic stability.

The government has also implemented steps to control inflation, particularly food inflation, which remains a persistent challenge due to agricultural supply constraints. 

RBI’s Role in Supporting Economic Growth

With the government having taken proactive fiscal measures, the finance secretary suggested that the RBI's actions would now play a crucial role in shaping the economic trajectory. He acknowledged that the central bank would act based on its own assessment of inflation and economic conditions.

No Sharp Rise in Oil Prices Expected

Addressing concerns about external risks, he dismissed fears of a sharp increase in global crude oil prices, citing stable petroleum supplies. However, he acknowledged that external factors such as exchange rate fluctuations and global financial market trends could still pose inflationary risks. 

Conclusion

As India navigates its economic recovery, the government has taken significant fiscal steps to drive growth while keeping inflation in check. With these measures in place, the focus now shifts to the RBI, whose monetary policy decisions will be critical in shaping the country’s economic trajectory. Coordination between fiscal and monetary policies will be key to ensuring stable and sustainable growth in the coming years.


Source: MoneyControl

FREE Trading & Demat Account
Open FREE Demat Account with endless opportunities.
  • Flat ₹20 Brokerage
  • Next-gen Trading
  • Advance Charting
  • Actionable Ideas
+91
''
By proceeding, you agree to our T&Cs*
Mobile No. belongs to
hero_form

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing. For detailed disclaimer please Click here.

Open Free Demat Account

Be a part of 5paisa community - The first listed discount broker of India.

+91

By proceeding, you agree to all T&C*

footer_form