Adopt a prudent macro strategy supported by robust institutions

India must combine well-calibrated inflation control, fiscal prudence and statistical modernization with sensible regulation

- SANJIV BAJAJ & CHANDRAJIT BANERJEE

As India navigates a period of heightened global uncertainty, marked by geopolitical tensions, escalating trade disputes and persistent supply chain disruptions, its macroeconomic resilience stands out as a defining strength.

However, to sustain this momentum and realize the vision of Viksit Bharat by 2047, it is imperative to adopt a forward-looking and coordinated macroeconomic strategy, underpinned by structural reforms, policy innovation and institutional capacity building.

Looking ahead, India must pursue a calibrated approach to inflation management, uphold fiscal prudence at both the central and state levels, maintain a stable monetary policy and modernize its statistical infrastructure. This will not only sustain India's growth momentum but would also ensure that its development journey remains inclusive and resilient in the face of global headwinds.

India’s inflation dynamics, particularly its recurring food price spikes, have constrained the effectiveness of monetary policy. The current framework does not adequately distinguish between transitory and persistent inflationary pressures, which could lead to interest rate decisions that do not fully address the underlying causes. Since transitory food inflation often drives headline inflation, a persistence-based response framework should be considered. This approach would incorporate real-time inflation decomposition tools to separate short-term shocks from structural trends, enabling better targeted monetary policy.

Recognizing the need for better policy coordination, CII proposes a council for fiscal-monetary policy coordination. This body would facilitate a structured dialogue between the government and Reserve Bank of India (RBI), aligning inflation management with supply-side interventions for greater impact.