'US tariffs, demand slump pose risks despite strong Q2 growth'

NAGESH KUMAR, EXTERNAL MEMBER, MONETARY POLICY COMMITTEE

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Nagesh Kumar, external member of the Monetary Policy Committee, believes that economic activity may have peaked in Q2. He tells Kshipra Petkar that US tariffs may hurt MSMEs and jobs. Excerpts:

At what point does very low inflation, such as the current 0.3% CPI print, begin to pose risks to growth or financial stability rather than offer policy space?

Inflation has remained benign, with headline CPI falling to 0.3% in October 2025, largely due to lower food prices. Full-year inflation is projected at around 2%, with expectations well anchored. While this provides policy space, inflation at such low levels tends to breach the lower bound of the inflation-targeting framework and signals a demand deficit. In a developing economy like India, this calls for policy support to sustain growth momentum.

FY26 Q2 GDP growth surprised positively at 8.2%, led by manufacturing. What were the key drivers behind this acceleration?