HomeIndiaMonetary Policy not the only tool to manage inflation: Sitharaman

Monetary Policy not the only tool to manage inflation: Sitharaman

India’s management encompasses many processes that are outside of the remit of . Therefore, to effectively manage inflation, monetary and fiscal policies have to work in lockstep, Union Finance Minister said on Thursday.

“India’s management is an exercise of so many different activities, a majority of which are outside of even in today’s circumstances,” Sitharaman said at an event organised by the Indian Council for Research on International Economic Relations (ICRIER).

Sitharaman said that while the Reserve Bank of India will have to synchronise its monetary tightening actions with that of other central banks, it may not be synchronised as much as developed central banks.

Also Read | Job creation, wealth distribution priority over inflation: FM Sitharaman

“I am not prescribing anything to the Reserve Bank, I am not giving any forward direction to the central bank. But it is the truth — India’s solution to handling the economy, part of which is handling also, is an exercise where the together with has been at work,” she said.

Sitharaman said inflation management can’t be singularly left to monetary policy, “which has proved totally ineffective in many countries”.

“The central bank, its instruments, its interest rate management form a very critical part of it, but it cannot be the one and only one,” the finance minister added.

India’s (CPI)-based inflation in July was the lowest in five months, aided by cooling global commodity prices and lower food prices domestically, but was still above the Monetary Policy Committee’s medium-term target, thus justifying the recent monetary tightening by the RBI.

Sitharaman said India’s decision to buy discounted crude oil from Russia was part of its inflation management policies.

“Our entire import from Russia was probably 2 per cent or sometimes even lesser, it was ramped up to almost 12-13 per cent within a couple of months,” she said, adding that other countries like Japan and Italy are also following suit and buying Russian crude in spite of sanctions.

The finance minister said that states will also have to do their bit to reduce prices at a local level, giving an example that states which did not cut their duties and taxes on petrol and diesel now have inflation higher than the national average.

“If the states’ inflation is also to be attributed to the Government of India, we need to have a way in which we work together to handle inflationary matters,” Sitharaman said.

“It cannot be that inflation is handled only by the Centre. And when states don’t take enough steps, that part of India suffers from want of relief from the stress of inflation. The exogenous factors affect both the Centre and states,” the Finance Minister said.

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