India Finance Chief Says Economy ‘Sound,’ Inflation ‘Manageable’

(Bloomberg) -- Indian Finance Minister Nirmala Sitharaman said her nation’s economy appeared, sound and expressed confidence that quickening inflation will be controlled.

“We’re looking very sound,” Sitharaman told Bloomberg Television’s “Balance of Power” with David Westin. “The recovery seems to be sustainable.”

India’s economy had started slowing even before the pandemic, mainly due to a crisis in its shadow banking sector. The shock of Covid-19 led to its biggest-ever contraction, with restrictions sapping demand in the consumption-driven economy.  

The IMF this week estimated an 8.2% pace of expansion this year, which would still make India the fastest-growing major economy. It would also be in line with the government’s projection of 8% to 8.5%.

In a separate interview, Sitharaman cited the 7.2% projected by the Reserve Bank of India for the fiscal year that began April 1 as her “bottom line” and said that 8% growth “seems absolutely possible.”

Monetary Policy

Accelerating inflation is making it difficult for the central bank to keep interest rates lower for longer to support growth. While the RBI has kept its benchmark rate at a record low, soaring consumer prices recently prompted a hawkish pivot toward prioritizing inflation over supporting growth.

In its April 8 policy statement, the RBI revised its inflation forecast for the current April-to-March fiscal year to 5.7%, from 4.5% seen in February.

The finance chief blamed a recent acceleration in inflation to factors beyond India’s control, citing higher crude and edible-oil prices, and noted that, compared with the U.S. and Germany, Indian inflation is “well within manageable ups and downs”

She said that, together with the central bank, the country’s policy makers will “be able to manage it.”

The central bank has to be “careful” balancing different economic forces, Sitharaman said. “They’ve been sensitive to developments on the ground.”

With regard to calls from the U.S. and other nations for India to help put pressure on Russia over its invasion of Ukraine, she noted the importance India’s geopolitical location and its need to ensure it stays strong.

“We have a northern border where we have had a war despite the pandemic,” she said. “We have had a western border where we have also frequent incursions.”

“India’s position is not without taking these factors into consideration. I would want that to be kept in mind when the United States or any of the western liberal democracies are looking at India,” she said.

“We need to be strong. Our interest should not be hurt.”

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