Piyush Goyal calls for repo rate cut, questions food inflation's role in policy

Union Commerce Minister Piyush Goyal, during a global leadership summit in Mumbai today, batted for a key interest rate (repo rate) cut, saying it'll lead to growth. "I certainly believe they should cut interest rates, growth is a further impetus. We are the fastest-growing economy in the world. We can do even better."

Goyal says the largest component of inflation in the inflation basket is food inflation. "I think the chief economic adviser (CEA) had also assessed the whole situation and this is not something I say today, if you look at the archives when I was in the opposition before I came into the government, I have been consistently saying it's a flawed theory that food inflation should be considered while deciding on the interest rate structure," the minister says at the CNBC-TV18 Global Leadership Summit.

India's retail inflation worryingly soared further to a 14-month high of 6.2% in October 2024, breaching the upper limit of the MPC's medium-term target range of 2-6%. The sequential hardening in inflation was largely led by the food and beverages segment, followed by a mild uptick in the core items.

The food and beverages inflation surged to an eye-watering 9.7% in October 2024 from 8.4% in the previous month, amid an uptick in 7 of the 12 food groups. Vegetables inflation hardened to a 57-month high of 42.2% from 36% in September 2024, which weighed on the food and beverages and, consequently, the headline inflation prints in the month.

The union minister says food inflation has "nothing to do" with managing the inflation. "That's a demand-supply situation. I have seen the data on a stock pilling of food products and the affairs minister also used to monitor that month-on-month."

Goyal says it's time that the policymakers and regulators seriously sit down, discuss with all the stakeholders and economists and reach a considered view on whether food inflation should at all be a part of the decision-making for inflation or interest rates.

He also clarified that it was his opinion. "I am not necessarily speaking for the government and I am quoting from the CEA's report and this has been my considered view for the last 30 years."

Asking if the government should cut the key lending rate by 50 or 25 bps points, he said he would like to leave that to economists. "They are wise and I leave it their judgement. Very often, it's signalling and the intent or confidence you give to the market."

On private capex, Goyal says private capex is picking up massively. "Every foreign investor, I meet, they talk about massive plans in India, massive growth of the industry, infrastructure, and assets. The private sector is very bullish on India."

The Reserve Bank of India’s monetary policy committee in October 2024 had kept the repo rate unchanged at 6.5% while unanimously changing the policy stance from ‘withdrawal of accommodation’ to ‘neutral’. RBI governor Shaktikanta Das had said that it is with a lot of effort the inflation horse has been brought to the stable, i.e., closer to the target within the tolerance band compared to its heightened levels two years ago. "We have to be very careful about opening the gate as the horse may simply bolt again. We must keep the horse under tight leash, so that we do not lose control. Going forward, we need to closely monitor the evolving conditions for further confirmation of the disinflationary impulses,” Das said.