Recent consumption measures may boost demand, lift GDP growth: Poonam Gupta

Challenge lies in identifying new sources of growth to sustain an accelerated trajectory, says Poonam Gupta

India’s aspirations to become a developed nation hinges on sustained economic prosperity, macroeconomic stability, and continuously evolving policy frameworks, says Reserve Bank of India Deputy Governor Poonam Gupta. At the Business Standard BFSI Insight Summit 2025, she told Business Standard’s AK Bhattacharya that India must rely on persistent structural reforms and stronger domestic growth drivers, in an era of rising global protectionism. Edited excerpts:

 

You talked about India’s policy framework, which has worked quite well. But are you concerned about two factors — one, there’s growing talk globally of a potential market meltdown; and second, protectionist tendencies are rising, with tariffs almost becoming weaponised? How should emerging markets, particularly India, navigate a rapidly changing global environment? 

The question of what India should aspire to be — a developed nation, an emerged nation, or an emerged market — is an important one. These goals go hand in hand, as economic prosperity is essential to becoming an emerged nation. The terminology may differ, but the objective remains the same. When an economy grows larger and more prosperous, while maintaining macroeconomic stability and evolves its policy frameworks in line with both domestic, and global complexities, it gains greater insulation from external shocks. That’s how countries transition into the advanced-economy club, as we’ve seen with South Korea, which is now close to joining that group. On your question about navigating global protectionism, it’s very relevant. The challenge lies in identifying new sources of growth to sustain an accelerated trajectory. Trade has not been a strong driver in recent years and is unlikely to return to the levels seen during the phase of hyper-globalisation. So, two things are essential, and India is already doing both. First, maintaining a steady focus on reforms, continuously improving in every area, whether it’s ease of doing business, financial intermediation, innovation, or research & development (R&D). Second is, strengthening domestic growth drivers. India has historically been more dependent on domestic consumption, which makes up around 60 per cent of GDP. If recent consumption-supporting measures help boost demand, even by one to two percentage points, that could significantly lift GDP growth given consumption’s large share in the economy. So, the focus must remain on improving across all sectors, private enterprise, policymaking, and household behaviour, while enhancing both global competitiveness and domestic growth engines. Encouragingly, this is the direction in which the economy is moving.

 

What role do you see for India’s export sector in this environment? Given the rise in global protectionism, how should we view export prospects and growth potential? 

It helps to view exports in two categories — services and merchandise. In services, India has performed very well over the past two decades and continues to have substantial potential. Merchandise exports, however, still have untapped opportunities. If we look cross-country, nations dependent on natural resources, like Canada, Chile, or New Zealand, face inherent limits to growth. Similarly, countries with adverse demographics or excessive reliance on commodities eventually reach their potential ceiling. India’s merchandise export basket is highly diversified, encompassing labour, capital, R&D, and skill-intensive sectors. With such diversity and scale, there’s no reason why India cannot continue improving its export performance. Notably, much of our progress so far has come at a time when global trade itself was subdued. Significant advances in infrastructure, logistics, and policy reforms have enhanced competitiveness. Given this, and the diversification of both products and markets, I see strong potential for merchandise trade to expand meaningfully in the coming years.

 

You also mentioned that India’s GDP growth has remained robust with strong first-quarter data and expectations of continued momentum in the second quarter. While the RBI projects some moderation next year, what role do monetary and fiscal policies play in sustaining growth? 

Growth results from a combination of factors — fiscal and monetary policies, structural reforms, entrepreneurship, availability of key inputs, and demand conditions. So, when growth discussions focus narrowly on monetary policy, the framing becomes incomplete even, at times, simplistic. Monetary policy supports growth in two ways — structurally, by keeping interest rates consistent with the economy’s long-term needs; and cyclically, by responding to short-term fluctuations. But beyond that, many other factors drive growth. If monetary policy alone could deliver prosperity, far more countries would be rich today. Before the mid-2000s, policymakers often lacked holistic frameworks. When too much weight is placed on one element, say, monetary policy, the overall outcome suffers.

 

And, on the fiscal side? 

Fiscal policy has been strongly supportive of growth. This has come through two key channels, a steadily improving tax system and a decisive shift in spending from revenue expenditure to capital expenditure. Public investment in infrastructure, combined with a focus on sound fiscal outcomes and transparency in budget reporting, has strengthened fiscal credibility. Both fiscal and monetary policies are aligned in recognising and delivering on their respective roles.

 

Turning to inflation, you mentioned that the current year’s estimate is around 2.5 per cent. Does this suggest we are entering a structural disinflation phase? What should investors and markets expect going forward? 

To understand this better, inflation needs to be viewed in three components — food prices, core inflation, and precious metals, each moving differently. The current decline in inflation is primarily driven by food prices, which are in deflationary territory, a situation likely to self correct due to base effects. Core inflation, excluding precious metals, has remained range-bound and is expected to stay that way. While projections are subject to uncertainty, current assessments indicate that core inflation will remain stable, with precious metals contributing to some upward pressure. When different components move in varied directions, a single narrative doesn’t capture the full picture. Over the medium-to-long term, however, India’s structural inflation trajectory has clearly moderated. When inflation targeting was introduced about nine years ago, inflation was in the 8-10 per cent range. Since then, it has come down structurally to around 4 per cent plus or minus, and volatility has reduced significantly. This lower volatility, in both growth and inflation, is a key achievement. It makes outcomes more predictable, which benefits investors and gives policymakers greater room to focus on structural priorities. Because volatility has been tamed through a resilient and credible policy framework, I expect this stability to continue.

 

Your department recently released a discussion paper on the monetary policy framework, now open for public feedback. Could you outline the next steps and timeline? Some experts suggest that liquidity management should be integrated more explicitly into the framework. What’s your view? 

The discussion paper was open for public comments for about a month, and we received extensive and thoughtful feedback. We reviewed comments sent directly, as well as those published in op-eds, editorials, and even on social media.

A clear majority of respondents have suggested maintaining the current framework, keeping the headline CPI as the target. Many have also noted that India’s upcoming revised CPI series should be updated more frequently than in the past.

There’s broad agreement that the 4 per cent target suits India’s current income level and growth stage, and that the 2-6 per cent tolerance band remains appropriate in today’s volatile global environment. Some have suggested adopting an asymmetric band, but such frameworks risk creating confusion about whether the midpoint or the announced target is the true anchor.

All these inputs are being compiled and will be shared with the government, which will take the final decision on the framework. The indicative timeline for these decisions is the first quarter of 2026. Our role is to gather, analyse, and transmit the feedback which we will be doing shortly.