Mumbai: The two monetary policy committee (MPC) members who voted to cut interest rates and change monetary policy stance at its last meeting believe the Indian economy needs to grow at joined its potential growth of 8%, as inflation continues to approach the target of 4%. The MPC had voted to keep repo rate unchanged at 6.5% for the eighth consecutive time in its June meeting. Jayanth Varma, who had been voting for a rate cut since February this year, argues that MPC should start cutting rates this quarter to give a boost to growth in FY26.
In an emailed interview, Varma said the goal should be to add 75-100 basis points to the FY26 growth rate. “I do not think anything that we do with monetary policy now will have much impact on the growth rate in 2024-25. This is because monetary policy acts with a lag of 3-5 quarters.
The task now is to bolster growth in 2025-26, and even for that, we need to start acting in this quarter. In my view, the goal should be to add 75-100 basis points to the 2025-26 growth rate," said Varma. India's GDP grew a sharp 8.2% in FY24, supported by strong January-March quarter growth of 7.8%.
The push to GDP growth came from several key sectors including manufacturing, construction, mining and services sectors. “India is at a point in the demographic transition where we need to grow rapidly to meet the aspirations of the new entrants into the work force. Finally, there is a lot of catch-up growth required to bring the level of GDP back to the pre pandemic trend line," Varma added.
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