India successfully kept inflation within manageable limits: Nirmala Sitharaman

India will achieve the lowest point in its fiscal deficit glide path in the next financial year, Union finance minister Nirmala Sitharaman said at Columbia University, emphasising on the country’s robust macroeconomic fundamentals despite an “the increasingly complex” global environment.
“India’s recent economic performance has been particularly noteworthy for its balance between growth and stability. While many countries are struggling with inflationary pressures, India has successfully kept inflation within manageable limits,” she said in her keynote address at the university on Tuesday morning (India time). The country’s retail inflation rose to 5.49% in September from 3.65% in August, but remained within the Reserve Bank of India’s (RBI) upper tolerance limit of 6%. The increase was solely driven by food prices, and is likely seasonal. RBI has a flexible inflation targeting (FIT) framework, centered around a target of 4% with a tolerance band of plus, minus 2%.
Speaking on inflation targeting recently, RBI deputy governor Michael Debabrata Patra said: “During the pre-pandemic period up to end-2019, inflation was low and stable, averaging around 4%. With the outbreak of the pandemic and associated lockdowns, inflation breached the upper tolerance band in many months during 2020–21 and 2021-22. … By April 2022, it reached a peak of 7.8%. The monetary policy response was front-loaded with a cumulative hike of 250 bps during May 2022-February 2023. In July and August 2024, inflation has fallen below the target (of 4%). It is projected to average 4.5% in 2024-25 before aligning with the target on a durable basis in 2025-26.” One basis point (bp) is a hundredth of a percentage point.
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Yet another metric of stability — the general government debt — has followed a “declining trajectory” in the post-pandemic period, even as major economies witnessed a surge in debt as a percentage of their gross domestic product (GDP), Sitharaman said adding that India’s external debt remained “comfortable” at 18.8% of country’s GDP as of June 2024. She was speaking at Columbia University on the topic “India’s Economic Resilience and Prospects Amidst a Challenging and Uncertain Global Environment”. The minister also referred to multiple headwinds — conflicts in West Asia, the Russia-Ukraine war, dollar liquidity shocks, increases in global tariffs due to trade wars, and oil-price shocks.
Talking about the fiscal deficit as another key indicator of healthy economy, the finance minister said the government has “worked very hard” in framing a glide path that will be “touching its lowest point” by the next fiscal year. In her budget speech on July 23, Sitharaman made a downward revision in India’s fiscal deficit target for FY25 from 5.1% of GDP targeted in the interim budget on February 1, 2024 to 4.9% sticking to a fiscal consolidation glide path announced in 2021 that aimed to reach a deficit below 4.5% by FY26.
Recollecting her budget speech of July 23, she explained that government’s approach to fiscal management post reaching the lowest point in the glide path would be debt management. She had said the fiscal consolidation path announced by her in 2021 had served the economy “very well” and the government would stay the course. “From 2026-27 onwards, our endeavour will be to keep the fiscal deficit each year such that the Central Government debt will be on a declining path as percentage of GDP,” she said during the budget speech.
“Debt to the GDP ratio is one of the sustainable indicators rather than the obsessive number-based physical deficit,” she said on Tuesday.
The finance minister said India’s strong economic growth can be attributed to its “astute Covid-19” management, coupled with a series of measures undertaken by the government to strengthen its manufacturing capabilities, focus on digital and financial systems, simplification of regulatory procedures, and enhancement in ease of doing business.
Highlighting India’s forex reserves and contrasting the situation with the forex crisis the country faced in 1991, the finance minister said India now has a strong buffer of foreign exchange reserves, which serves as an insulator in the face of adverse external developments such as disruptions to capital flows and oil price spikes. Efficient exchange rate management and strong capital inflows have led to a build-up of sufficient foreign exchange reserves, she said. At the end of September 2024 India’s forex reserves stood at $704.9 billion, making India the fourth economy in the World to cross $700 billion mark on this parameter after China, Japan, and Switzerland. India’s forex reserves are sufficient to cover more than 12 months of imports and 100% of external debt as of the end of June 2024, she said.
Sitharaman said the focus of India’s growth is the upliftment of the poor. Inclusivity remains a key cornerstone to India’s growth process, she explained, rattling off figures. Between 2021 and 2023, the incomes of the bottom 20% of households increased by 75%, while the middle-income groups saw gains of over 30%. Importantly, this period also witnessed a reduction in income inequality, with the Gini coefficient declining from 0.51 to 0.39. This rebalancing of income distribution highlights India’s progress towards inclusive growth, she said. According to the World Bank, the Gini index (or coefficient) measures the extent to which the distribution of income or consumption among individuals or households within an economy deviates from a perfectly equal distribution. A Gini index of 0 represents perfect equality, while an index of 1 implies perfect inequality.