RBI’s Monetary Policy Committee (MPC) member Saugata Bhattacharya cautioned that excessively low commodity prices may not be beneficial for Indian manufacturers. Such low prices can reduce profit margins and discourage new investments in capacity expansion — a key policy focus area for India. He suggested that moderate inflation should be encouraged to sustain manufacturing growth and profitability.

India’s Growth Outlook

Bhattacharya endorsed the RBI’s growth projection of 6.8% for FY26, following 7.8% growth in the first quarter. Despite global economic challenges and uncertainty in trade relations, India’s growth remains resilient compared to most economies. He noted that pending free trade agreements (FTAs) with the US and EU could influence future growth momentum.

Risks to the Economy

The main economic risks arise from a potential slowdown in merchandise and services exports, caused by weaker global demand and trade disruptions. However, domestic demand — especially in non-export sectors — remains strong due to fiscal and monetary stimulus measures, including government support for MSMEs. The overall impact of export slowdown on the domestic economy needs close monitoring.

Trade and Current Account Challenges

Bhattacharya warned that high tariffs on Indian exports, particularly the 50% duty imposed by the US, could hurt labour-intensive sectors. However, exports such as electronics, auto components, and pharmaceuticals remain exempt from these tariffs. The decline in exports may widen India’s trade deficit, though diversification into other markets could offset part of the impact.

Monetary Policy and Inflation

Although headline inflation levels (CPI and WPI) have eased, Bhattacharya argued that it is not yet a strong reason to cut policy rates. He highlighted that credit growth, consumer spending, and corporate investment are already improving. Excessive rate cuts might even reduce capital inflows. Hence, the RBI should wait and observe the effects of previous policy measures before further easing.

Effect of GST Cuts and Stimulus

The recent GST rate cuts have generated a positive consumer response, especially in sectors like automobiles and consumer durables. Bhattacharya emphasized the need to monitor how long this surge in demand continues. He also noted that fiscal and monetary stimulus measures are unlikely to cause core inflation to rise soon, as current manufacturing capacity utilization still allows for expansion without overheating the economy.

Investment Revival and Future Growth

According to Bhattacharya, private investment is likely to gain momentum in 2026, driven by demand revival, lower interest rates, and greater business confidence. Promising sectors include technology, renewables, data centres, chemicals, and electric mobility. He added that sustained high growth above 8% will depend on reducing trade uncertainties and continuing structural reforms.

UPSC Relevance

• GS Paper 3 Topics: Monetary policy, inflation, industrial growth, investment trends.

Overall Conclusion

The RBI official underlined that a healthy level of inflation and stable commodity prices are essential to maintain profitability, encourage investment, and drive long-term growth. Excessively low prices might hurt India’s manufacturing base, while balanced inflation supports sustainable economic development.