MUMBAI: Continuing reforms and a resilient growth rate along with effective monetary policy frameworks have put the country on course to attain the status of an emerged market economy in the coming years, Reserve Bank deputy governor Poonam Gupta said on Wednesday.
Gupta, who joined the bank in May, also said the strong growth outlook leaves scope for more monetary policy easing while fiscal policy remains conducive for expansion.
“India is poised to transition from an emerging to an emerged market in the coming years, thanks to sustained economic reforms and resilience,” Gupta said addressing an event organized by the Business Standard here. She added that improved fiscal practices, monetary policy, and economic tenacity are helping this transition, while challenges like protectionism pose threats to global trade and domestic growth benefits.
Gupta also highlighted the evolution of policy frameworks as a key factor in this transition and emphasized the shift from a regulated to a market-driven exchange rate and robust external account management. She noted the strength of our diversified balance of payments, with services exports and remittances balancing the merchandise trade deficit, even as oil prices no longer hamper growth significantly.
While highlighting fiscal discipline and monetary policy reforms, she also warned of global trade threats posed by rising protectionism, which could reduce growth contributions and technology transfer benefits.
Though the economy has been growing steadily at 6.5%, with a forecast of 6.8% for the current fiscal, she said, however, this is not our destination yet, and there remains room for monetary policy easing. She attributed the strong growth to fiscal and monetary policies, structural reforms, entrepreneurship, the availability of key inputs, and domestic demand.
Commenting on fiscal policy, Gupta said it has remained supportive of growth through a better tax system, an increasing focus on capital expenditure over revenue spending, and improved fiscal transparency.
Breaking down inflation into three components—food prices, core inflation, and precious metals—Gupta said these drivers are currently on very different trajectories.
“The current deceleration in inflation is mostly, if not fully, driven by food price inflation, which is in a deflationary territory and will likely auto-correct,” she said, adding core inflation, excluding precious metals, has remained range-bound this year, while the price of precious metals continues to influence overall inflation.
“When you have three different drivers of inflation contributing to it, there cannot be a single narrative. A single narrative can only be around the inflation trajectory over the medium to long term,” Gupta explained.
On the still lagging manufacturing show, Gupta said the sector appears constrained by slowing global trade and the dominance of established international players that are difficult to displace.
“The potential of the manufacturing sector seems to have become limited, both due to stalling global trade and because large players continue to dominate markets, making it difficult to displace them through productivity gains,” she said.
