Winning Bizness Desk

Mumbai. Commerce Minister Piyush Goyal has urged the Reserve Bank of India (RBI) to consider reducing interest rates, highlighting his concerns over RBI’s heavy reliance on food inflation to make monetary policy decisions. Goyal described using base interest rates to address volatile food inflation as ineffective and impractical. However, he clarified that this is his personal view, not the official stance of the government. Speaking at the Global Leadership Summit, Goyal expressed confidence that inflation would reduce by December. He noted that inflation has been at its lowest since India’s independence during the current Modi government’s term. During his address, he questioned the RBI's approach, which heavily considers food inflation when setting monetary policies. Meanwhile, RBI Governor Shaktikanta Das has a different view.

Food items like vegetables are a significant part of the CPI - RBI

In an interview in August 2024, Governor Das explained that food items like vegetables are a significant part of the Consumer Price Index (CPI). Ignoring them when calculating inflation wouldn’t make sense to the public. Das pointed out that, for most households, food takes up about 50% of their income, making food prices crucial in the public’s perception of inflation. He noted that it would be unreasonable to claim that inflation is low if people still spend a large portion of their income on food. The Governor emphasized that food inflation is essential to India’s inflation targets, as it accounts for 46% of the consumption basket.

Foreign investors’ selling in Indian stock markets

In addition to discussing interest rates, Goyal also expressed concerns about foreign investors’ selling in Indian stock markets. He encouraged investors to focus on long-term growth rather than quarterly market fluctuations. Despite short-term challenges, Goyal emphasized that India’s economic fundamentals remain strong and resilient. The difference in views between the Commerce Minister and the RBI reflects the complexity of managing India’s economy. While Goyal sees interest rate cuts as a way to boost economic growth and tackle short-term volatility, the RBI prioritizes keeping food inflation in check to maintain long-term stability.