- 5 weeks ago
In an exclusive interview with India Today, Reserve Bank of India (RBI) Governor Sanjay Malhotra described the Indian economy as being in a 'Goldilocks period' characterised by high GDP growth of 8 per cent and low inflation.
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00:00It's been a year since Mr. Sanjay Malhotra took charge as the Governor of the Reserve Bank of India.
00:07It's a year in which the Central Bank has had to walk a fine line between sustaining growth and safeguarding stability.
00:16In that time, Governor Malhotra has pushed the envelope on several key fronts.
00:21And we are delighted that Governor Malhotra has agreed for a special interview with India Today magazine.
00:26I'm Raj Chengapa and this is my colleague M.J. Arun.
00:30Governor Malhotra, welcome to India Today.
00:31Thank you very much. It's my pleasure to be here.
00:34One of the things that you did, you know, just before you completed one year's RBI,
00:38and it's been an unusually eventful term that you've had so far.
00:42Absolutely.
00:43That if you take a look at the global scene, it has been, global trade has been shaken by President Trump's return
00:49and of course reciprocal tariffs and we felt the weight of it the most.
00:52The rupee has weakened sharply.
00:54Unfortunately, inflation has fallen to a multi-year low and yet India has clocked an 8.3% growth in the second quarter of its GDP.
01:05Now, you describe this phase as the Goldilocks period for the Indian economy.
01:10From a central banker's perspective, how real is this sweet spot?
01:15Are we genuinely in a structurally stronger phase of growth or is this a window created by a unique alignment of global and domestic factors?
01:23Yes, you are absolutely right.
01:26This has been rather eventful and a challenging year with all the geopolitical events, tensions, the trade fragmentation that we witnessed.
01:39Despite that, despite these external headwinds, India in the first three quarters, for which we have data in this calendar year,
01:48has done remarkably well, both in terms of inflation, we are in historic lows, as you mentioned, and even so, you know, in growth, about 8% on an average for these three quarters.
02:03So, we are certainly, you know, in a sweet spot.
02:06Going forward, this year we are projecting a growth rate of 7.3%.
02:11Next year, Q1 and Q2, we are projecting a growth rate of 6.7% and 6.8%.
02:17I just want you to elaborate on this Goldilocks word that you use.
02:21It's a very curious phrase.
02:22It's a banker's phrase.
02:23But if you could say why you saw it as a Goldilocks period and define the word when you say Goldilocks, it has various connotations.
02:30What in your mind is it?
02:31So, when we say Goldilocks, you know, in economics terms, it is, you know, the balance of the growth and inflation.
02:39So, generally, you know, high growth means high inflation.
02:43Right.
02:43And low growth, you know, and low growth can mean, you know, low inflation.
02:48But we are having the best of both the worlds.
02:50We are having, you know, low inflation and high growth.
02:52So, that's a very sweet spot, you know, to be in.
02:57Right.
02:57So, Governor, given that, you know, as you said, that we are in a Goldilocks phase, the next question naturally comes, you know, how do you sustain this?
03:08Because, you know, sustaining this would really mean that, you know, we have more private investment coming in.
03:14We have more jobs being created for the economy.
03:18At the same time, you know, there are so many external factors, like you said, you know, which can really sort of shake up the economy.
03:25We still don't have a deal with the U.S., so everybody is watching that.
03:29So, how sustainable is this trend?
03:33And also, according to you, what would be some of the risk factors that would, you know, sort of pressurize it from the other end?
03:40Yeah, so it's not, you know, one single factor which has played out in this moment and we have been, you know, in this kind of a period when you talk about growth for quite some time now.
03:56So, if you look at, you know, last four years, the average growth GDP is about 8% post-COVID.
04:05If you look at the last decade, we had an average growth of 6.6%.
04:09Now, this is a result of a combination of measures that the government and the central bank has taken, you know, over the period of time.
04:21Number one, you know, most importantly, it is, I think, you know, the policy stability that has been provided, certainty because, you know, that's very important.
04:32And, of course, now some external uncertainties are there because of which you can see some, a little bit of a correction in the growth.
04:45But otherwise, policy stability, financial stability, price stability, this continued focus on growth of the government.
04:57And a number of, you know, reforms, as a result of which, you know, a number of reforms have been taken.
05:05Recently, GST rationalization was one of them, followed by, you know, the labor reforms, a number of PLI schemes, you know, have been launched by the government, focus on manufacturing, on employment, on jobs creation.
05:19And then the very solid balance sheets, both, you know, of the government, the private sector, and the households, good capacity utilizations.
05:33So, I think, on the whole, you know, you look at each and every sector, each and every area of the economy, we are in a very good phase.
05:49And that should help us in sustaining this momentum of growth going forward.
05:55Right. I'd like to come to something that you've really done and changed a lot, is since February 2025, the RBA has cut the policy rate by 125 basis points.
06:08It is now, you know, points to 5.25 percent. That's the rate right now.
06:14This is striking because the last comparable easing happened, I think, in the cycle in 2019 or so.
06:21And that was a bit sharply slowing growth. This time, rates have been cut despite GDP growth.
06:28So, what changed in the RBA's assessment? And do you see this as the start of another process?
06:35Will we continue to see rate cuts or this is it and you will now stabilize?
06:40So, if you compare, you know, with the last time that we brought down the rates as low as 5.25 percent,
06:46and then, you know, it went down even further to 4 percent, we were in a very different situation.
06:53It was exactly the reverse, in fact.
06:55That's right.
06:56Because the growth was low and inflation was high.
06:58Yeah, right.
06:59And it was increasing. Headline, you know, next year was more than 4 percent, about 4.8 percent in 2021, you know.
07:08So, we were heading into higher inflation, lower growth.
07:12This time around, we are heading into, we are having good growth and we are having, you know, very benign inflation.
07:19So, it's primarily because of the benign inflation.
07:23Last time, you know, it was low growth which needed to be supported.
07:26Now, you know, the real interest rates, as I was mentioning to you, real interest rates, especially, you know, because core X gold is quite low.
07:39It's less than, it's about going forward because monetary policy actually works forward looking.
07:46It's forward looking.
07:46And so, the outlook is very benign, 3.5 percent or so.
07:52And so, real rates need to be a little lower.
07:55And so, that's why, you know, we reduced our policy repo rate by 25 basis points.
08:03Going forward, you know, we are, monetary policy is not, you know, preset.
08:08It evolves.
08:10We are data dependent.
08:11We are in a neutral phase.
08:13It's for the MPC actually, you know, to decide and see what the data points to and what we should be doing from policy to policy.
08:24However, as I mentioned, I do feel that inflation should remain benign for a longish period of time.
08:34And if that is going to remain barring, you know, shocks on the supply side, could be weather, could be geopolitics, could be something else, then we are in for a long period of low policy rates.
08:49I'm just pushing it a little further in the sense that you were in the finance ministry before you took up this job.
08:56Do you see, there's always the complaint that private investment really didn't, and that's the government's complaint, not yours,
09:02that private investment really didn't live up to what it should have done after the huge rates in their income tax, corporate tax rates and everything else.
09:10Do you see that change now?
09:12Is that what you're referring to when you say private investment is up and is that sufficient to propel growth?
09:18Yeah.
09:19So, see, as I mentioned, gross fixed capital formation last four years as GDP, GDP has grown by about 8 percent, even, you know, the capital formation has grown by about 8 percent.
09:32The private sector over there, as you are saying, as you have mentioned, has impeded that.
09:38I mean, it could have been much more, as you are saying.
09:41But as I mentioned, it is demand which will lead to investment and not the other way around.
09:47And with consumption continuously, you know, growing, growing at a fast pace, I'm quite confident that investment will further, private investment, you know, will further grow up.
10:02Let's also keep in mind two or three things with regard to private investment.
10:08One, capital intensity, you know, of our economy is actually decreasing because capital is becoming more productive, number one, more efficient.
10:22And number two, there is a shift of the composition of our economy towards services sector, which is growing and which is less capital intensive.
10:31So, the growths in investment, private investment will not be as high as they used to be earlier.
10:40Number two, some of the sectors that earlier used to witness capex, they themselves, as a result of this, are changing.
10:52If you look at power sector, for example, we were in a deficit situation.
10:56So, to meet the deficit, obviously, the capital requirements would have been much more.
11:02We are now, you know, more or less in a self-sufficient, you know, position having met all the deficit.
11:09So, the growth in investment is not going to be, you know, as high in those sectors.
11:15On the other hand, you see higher growths in investment in some of the new sectors.
11:21Renewable energy, for one.
11:23Defense equipments.
11:25Now, you know, there is a push by the government on defense equipment, electronics, semiconductors, mobile phones.
11:33So, there is a shift in terms of the sectors that we normally would have otherwise tracked for private investment.
11:43So, all these things, and given the fact, you know, that as I mentioned earlier, good capacity utilization, very healthy balance sheets of the corporates, they are poised.
11:55And, similarly, you know, the good balance sheets of the banks who are eager to lend more and more to the real economy.
12:04I think all of these augur very well going forward for private investment.
12:08Since my colleague N.G. Arun mentioned exporters, one of the things is the currency issue.
12:13And, you know, the rupee has crossed 90 to the dollar.
12:17And yet, the RBI, unlike in the past, is in no rush to aggressively defend a specific level of the rupee.
12:24At the same time, the weaker rupee, as we have been talking about, has cushioned exporters and import to the competing industries amid rising U.S. tariffs.
12:35So, it doesn't seem to be getting any relief on that.
12:38Is the RBI consciously allowing greater exchange rate flexibility?
12:43How do you balance competitiveness with imported inflation and financial stability?
12:49Yeah, so, on currency, you see, we have a very stable stated policy that we do not target any level or any price band.
13:01And we let the market forces, which we believe, you know, are quite deep to determine what the appropriate level of the rupee should be vis-a-vis, you know,
13:15whether it is the dollar or the pound or the euro or any other foreign currency.
13:21Our aim over there is primarily to curb any kind of an undue or excessive or an abnormal kind of a volatility which we try to curb.
13:34Or if, you know, there is some kind of unnecessary speculation, which is getting built into the prices, then we, you know, come in.
13:47Otherwise, we let the market forces determine the prices, which in the long run we believe, you know, are quite efficient.
13:57The market, you know, is quite efficient.
14:00And so, even in this round, while some currency depreciation may help exporters, the primary purpose is, I mean, it's not that we have made a conscious effort to let the rupee, you know, depreciate.
14:19And why I asked you that, because if you see what happened the previous four years, I think close to 2% of the GDP was spent on shoring up the rupee
14:27and keeping it at a rate that the RBI and the government thought was fine to help India.
14:34So, should Indians now get used to a structurally weaker rupee?
14:38Is that the policy going ahead that, look, we're not going to intervene, barring, as you said, major fluctuations, but generally we believe that that's the direction we should be heading to?
14:47I don't think, first of all, you know, I don't think there is any major change in the policy of the RBI to intervene.
14:55As I mentioned earlier, the policy has been very stable over the last few years and it's only undue excessive volatility that we try to reduce.
15:08Secondly, as to what levels the Indian economy should be prepared for, see, over the years, I think there is this volatility which will continue to happen, which we have witnessed even earlier.
15:25So, it's not something, you know, which is new or our economy is not prepared for.
15:32I may mention that ECBs are today, you know, 76% hedged.
15:36So, people are already, you know, they already, you know, factor in and they are prepared for this kind of volatility.
15:44Last 10 years, the depreciation has been about 3%.
15:48On an average, 20 years, it has been about 3.4%.
15:52So, it has come down, the depreciation on an average has come down.
15:57And we believe that even going forward, the depreciation level should not be significantly different.
16:04Maybe, you know, it should be on the lower side, given the fact that inflation now in India is going to be lowered vis-a-vis, you know, the other economies.
16:17And why we depreciate is because one of the major reasons, you know, thereof is that there is huge, there is a difference in the inflation.
16:27While, you know, advanced economies like U.S., they target 2%, we target 4%, we were higher, you know, than 4%, as I mentioned, we were 4.9%.
16:37So, this differential in inflation will, as long as it is there, our currency will depreciate.
16:47But going forward, we are quite confident.
16:50We have a very robust, strong external sector position.
16:55We have 11 months of import cover for goods, as everyone knows.
17:02And we are about, you know, we have 92% in foreign exchange reserves vis-a-vis, you know, our debt, external debt.
17:13External debt, you know, is about $750 billion U.S. dollars.
17:16And we have about $690 billion of foreign exchange reserves.
17:22So, we are very comfortable in meeting our external sector liabilities, whether it is on the current account, whether it is on the capital account.
17:32And do you expect this recent GST rejig to have really a lasting impact on consumption and, of course, compliance in the next few quarters?
17:41Certainly, certainly, certainly.
17:42Certainly, I mean, it is already happening.
17:44We have seen that to a great extent.
17:47It has increased the purchasing power of the people by reducing prices.
17:52And to that extent, we will certainly continue to see good growth in consumption.
18:02The monetary policy easing that we have been doing for now about almost a year, that should also, you know, help increase and boost consumption.
18:12And most importantly, I think, the focus that the government has on growth, number one.
18:19And number two, structurally, you know, the way the Indian economy today is poised with a good, very good, you know, foundation and in a sweet spot, as we say,
18:33that should continue to help us growing for a long period of time.
18:38And how do you see this reflect?
18:40We saw Q2 at 8.3%.
18:42How do you see this reflect in the next quarters?
18:45How confident are you of sustaining that?
18:47We have given our estimates, 7.3%, you know, percent for this year as a whole.
18:52Of course, you are saying, you know, some of the forecasts are a little higher.
18:56So, we stick to, you know, the latest forecast that we have for this year.
18:597.3% is very robust, very strong, despite, you know, external headwinds.
19:05And next year, again, you know, 6.7 and 6.8, Q1 and Q2 of 27.
19:11Those are the numbers that we have given out.
19:13Difficult to accurately predict, as I mentioned, and forecast the numbers precisely.
19:18But as I said, structurally, we are in a very good position from a macroeconomic point of view that we should continue to have, you know, but for external shocks and risks, which always will be there, we are in for a very long term of good growth in our country.
19:43Governor, you mentioned the fact that, you know, the financial sector looks much healthier.
19:50See, barring episodes, there can always be.
19:53Yeah.
19:53Barring episodes, the banking sector is very resilient, very robust.
20:00Profitability figures are good, about 14% ROE on an average.
20:05Asset quality, again, is excellent.
20:10Net NPA is about 0.5%.
20:12Again, historic lows.
20:17Your capital adequacy is good, 17 plus percent.
20:21Liquidity, again, at about 130%.
20:24On the whole, you know, if you look at the banking sector, it's quite strong.
20:31Governance has improved over the years.
20:33As a result of various measures taken collectively by the central bank, the Bank of India and the banks put together.
20:43Right.
20:44And regulation has further, you know, improved, strengthened, supervision has strengthened.
20:50We do a lot of off-site, regular, continuous, with the use of data, use of AI, etc.
20:58So, supervision has become more precise, you know, better, has become better.
21:05So, all these things gives us the confidence that the banking sector is much better, much better placed today than it was, you know, 10 years ago.
21:19So, a lot of it, a lot of the credit also goes, apart from, you know, the central bank for its policies, to the central government, which cleaned up the public sector, which provided, you know, the capital for the public sector, and which improved, you know, the governance in the public sector.
21:37Right.
21:38So, collectively, I think over the last 10 years, the banking system has certainly improved.
21:46You know, you've talked of India being the fastest growing economy, large economy, and that's very good.
21:55But for the public at large, one of the things is great, the numbers look great, but are we getting the jobs that we should be getting?
22:01And if you look at that, it does remain a very sensitive issue.
22:06There's no doubt about that for every government that's there.
22:08From the RBI's vantage point, do you see signs that growth is becoming more employment-oriented or employment-intensive, or is the economy still growing faster than it is hiring?
22:22Yes.
22:23So, certainly, you know, I mean, employment is a major factor or a major objective for any economy,
22:36while, of course, for us, in the central bank, it is price stability, keeping in view growth, which is our objective.
22:47But one can't overlook employment, which I believe over the years has been doing quite well.
22:53If you look at data, and today itself, we had, yesterday itself, data was released, monthly PLFS report that they now carry out, you know, on a monthly basis.
23:04Unemployment rate is down, 4.8% or so, it used to be 5.6%, as late as May, so it's come down.
23:14Even if you look at it over a longer period of time, 17, 18, and thereabouts, the PLFS, the periodic labor force participation rate,
23:27the labor force participation rate, as per the PLFS, annual PLFS data, used to be in the region of about 60%, is a region of, sorry, about 50%.
23:37So, from now, 50%, 23%, 24%, to 60%, it has improved, certainly.
23:44Of course, there is need.
23:46That doesn't mean, you know, that we don't create more jobs.
23:49There is certainly, you know, need to create jobs at a higher pace and to create jobs with higher wages going forward.
24:00And I think the economy is in good position to be able to do so.
24:08And finally, what keeps the RBI governor awake at night as you enter your second year in it, was it inflation surprises or global financial instability,
24:20fiscal slippages or domestic credit risk?
24:23Which are the ones that say, oh, gosh, you know, I've got to spend a couple of sleepless nights on this?
24:29So, it's been famously said, you know, by a central banker that it's the job of the central banker to worry.
24:34It's to worry, yeah.
24:35So, we are constantly on our toes for, you know, the various risks that can emerge from various places.
24:44External sector, for example, you know, as mentioned, those risks continue, whether it is on geopolitics, whether it is trade fragmentation,
24:54whether it is elevated public debt levels, which can have, in some of the advanced countries, which can have spillover effects, higher asset prices.
25:02Again, you know, in some of the countries, especially related to AI, which can again have, you know, spillover effects, technology.
25:11And domestically, of course, you know, you have weather and climate related events, which we have to be, which we have to take into, which we have to be alerted to.
25:23So, fiscally, you said, I think government is on a good track.
25:29They have been consolidating both centre and states.
25:33I am quite confident that going forward, too, they will continue to improve their balance sheet.
25:42Governor Sanjay Bhattopar, thank you very much for this exclusive interview and insightful.
25:47We are hopeful that you stop worrying much so we can keep smiling right through, the public does.
25:54Thank you very much.
25:54Thank you. It's been my pleasure.
25:56Thank you very much.
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