RBI Governor Calls For Structural Reforms, Fiscal Measures
Shaktikanta Das, governor of the Reserve Bank of India. (Photographer: Dhiraj Singh/Bloomberg)

RBI Governor Calls For Structural Reforms, Fiscal Measures

Reserve Bank of India Governor Shaktikanta Das has called for structural reforms and fiscal measures to help give a “durable push” to demand. Das’ comments come days ahead of the Union Budget which is expected to strike a tough balance between fiscal prudence and the need to support the economy at a time when demand is weak.

Das said that the central bank has been making a constant assessment of the economy based on incoming data and forward-looking information. This helped the central bank recognise the imminent slowdown and act early, Das said.

The Monetary Policy Committee cut rates by 135 basis points in 2019 and paused in December. The rate cuts were front-loaded and came ahead of a fall in GDP growth to six-year lows.

Monetary policy, however, has its own limits, Das said.

Structural reforms and fiscal measures may have to be continued and further activated to provide a durable push to demand and boost growth.
Shaktikanta Das, Governor, RBI. 

The government could prioritise areas such as food processing industries, tourism, e-commerce, startups and efforts to become a part of the global value chain to significantly push to growth, Das said.

“Government is also focusing on infrastructure spending which will augment growth potential of the economy,” he said. “States should also play an important role by enhancing capital expenditure which has high-multiplier effect.”

Financial Stability ‘Key Consideration’

Das, who was speaking at his alma mater St. Stephens College in New Delhi, titled his speech ‘Seven Ages Of India’s Monetary Policy’.

The most recent phase began in 2016 when India formally adopted a flexible inflation targeting framework and left behind the multi-indicator approach. The agreement signed between the RBI and the government and the subsequent changes to the RBI Act redefined the central bank’s objectives by saying “the primary objective of monetary policy is to maintain price stability while keeping in mind the objective of growth”.

Das, however, added that the post-global financial crisis experience has brought into question the narrow focus on price stability as the sole objective of monetary policy. The world over, financial stability has emerged as another key consideration for monetary policy, Das said, adding that whether it should be an explicit objective remains a subject of debate.

The central bank has accorded importance to financial stability since the enactment of the RBI Act. More recently, the focus of financial stability has not only confined to regulation and supervision but also extending the reach of formal financial system to the unbanked and unserved population, he said.

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