India Poised to Achieve Over 7% Growth Rate: RBI Governor Sanjay Malhotra

On February 7, Reserve Bank of India (RBI) Governor Sanjay Malhotra expressed confidence in the country's economic prospects, stating that India is fully capable of surpassing a 7% growth rate and should set its sights on achieving this target.

In its latest bi-monthly monetary policy review, the central bank has revised its growth projection for the financial year 2025-26 to 6.7%, an increase from the 6.4% estimated for the current fiscal year.

"I am willing to go on record to say that India can undoubtedly achieve a growth rate of 7% or higher. This is an aspiration we should collectively aim for," Malhotra remarked when asked about the possibility of faster economic expansion.

Budget Measures and Inflation Outlook

Discussing the recent Budget proposals put forth by Finance Minister Nirmala Sitharaman, Malhotra dismissed concerns that the income tax relief measures would contribute to inflation, instead highlighting their role in supporting economic growth.

Sitharaman announced a rise in the personal income tax exemption threshold from ₹7 lakh to ₹12 lakh, along with a revision of tax brackets that could enable higher earners to save up to ₹1.1 lakh. These adjustments are expected to benefit approximately one crore taxpayers.

Following the RBI’s last bi-monthly monetary policy announcement for the fiscal year, Malhotra commended the Union Budget 2025-26, describing it as "excellent" from both growth and inflation perspectives. He emphasized that the Budget’s focus on agriculture would bolster the production of essential commodities such as pulses and oilseeds, helping to mitigate food inflation.

Earlier in the day, the RBI projected retail inflation at 4.2% for the upcoming financial year (beginning April 2025), while maintaining its forecast for 2024-25 at 4.8%. Malhotra noted that food inflation pressures are expected to ease significantly, provided there are no major supply-side disruptions. Factors such as a robust Kharif harvest, seasonal declines in vegetable prices, and positive Rabi crop prospects are likely to contribute to this softening.

Currency and Forex Reserves

Addressing concerns about the rupee’s depreciation, the RBI Governor reiterated that the central bank has maintained a consistent exchange rate policy and does not target specific levels or bands for the currency.

"Our focus should be on long-term exchange rate stability rather than short-term volatility," he stated.

On Thursday, the rupee fell by 16 paise, closing at a record low of 87.59 against the US dollar. Since the beginning of the year, it has depreciated by around 2%, with a total decline of 3.2% since November 6, 2024—the day US presidential election results were announced. This depreciation largely mirrors the 2.4% appreciation in the dollar index over the same period.

India’s foreign exchange reserves have decreased by $45 billion in the past three months, partly due to the RBI’s interventions in the forex market. As of November 8, 2024, forex reserves stood at $675.65 billion. However, as of January 31, 2025, they had recovered slightly to $630.6 billion, up from $629.55 billion in the previous week, providing an import cover of over 10 months.