Is it time for India to shift focus from monetary and fiscal support to achieve 'aspirational' growth levels?
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Synopsis
In a crucial report, HSBC urges India to prioritize structural reforms over mere monetary and fiscal support to achieve aspirational growth levels. The call for deeper trade reforms and enhanced capital expenditure reflects the need for a more robust economic strategy. Find out how these insights could reshape India's economic future.
Key Takeaways
- Focus on structural reforms is essential for achieving economic growth.
- Trade reforms like tariff reductions are underway.
- The RBI maintains a steady repo rate at 5.5%.
- Fiscal spending is increasing but may have limited room for growth.
- Inflation forecasts are being carefully monitored by the RBI.
New Delhi, Aug 6 (NationPress) In order to achieve 'aspirational' growth levels in India, it's crucial to move past just relying on monetary and fiscal support and instead prioritize structural reforms, according to a report by HSBC Global Investment Research released on Wednesday.
To this end, certain trade reforms are already in motion, including the reduction of tariffs on intermediate inputs, the establishment of additional trade agreements, the encouragement of Foreign Direct Investment (FDI), and the enhancement of the business environment across various states.
However, the report emphasizes the necessity for these measures to have a significant impact.
It further mentions that if upcoming growth data appears weaker, the Reserve Bank of India (RBI) could potentially revise its FY26 growth forecast downward and consider a rate cut. The report continues to maintain its projection of a 25 basis points rate cut in the fourth quarter of 2025.
Yet, the extent of growth support the RBI can provide is limited, it warns.
Fiscal spending, particularly on capital expenditure, has seen an uptick in recent months, although there may be constrained capacity for additional fiscal stimulus, the report states.
The RBI's Monetary Policy Committee (MPC) unanimously decided to keep the repo rate steady at 5.5 percent.
This aligns with our expectations, as the current hold follows a substantial amount of easing already implemented, as noted in the HSBC report.
In the first half of 2025, the RBI reduced the repo rate by 100 basis points, announced a similar cut in the Cash Reserve Ratio (CRR) over four installments from September to November, and introduced Rs 9.5 lakh crore of durable liquidity through methods like Open Market Operations (OMOs), CRR cut announcements, buy-sell swaps, and Variable Rate Reverse Repos (VRRs).
The RBI forecasted a growth rate of 6.6 percent for Q1 FY27, slightly up from its unaltered growth forecast of 6.5 percent for FY26, asserting that 'growth is robust… although below aspirations'.
While acknowledging weak urban consumption, it also highlighted strong rural consumption and public capital expenditure.
Despite revising its FY26 inflation forecast down to 3.1 percent from 3.7 percent, the RBI projected its Q1 FY27 inflation forecast at a higher 4.9 percent, influenced by low base effects.
The commentary pointed to the significant role of low vegetable prices in driving current lower inflation, while core inflation is gradually rising.
The HSBC report notes that this combination of improved growth and inflation forecasts may indicate that the threshold for further easing is quite high.
Although the recent rate cuts are beginning to impact lending and deposit rates positively, RBI Governor Sanjay Malhotra indicated that the overall effect on credit demand may take some time to materialize.
From this perspective, today's policy stance is seen more as a placeholder rather than a hawkish approach, according to the report.
Point of View
I firmly believe that India's economic roadmap requires not just monetary and fiscal patience but a robust commitment to structural reforms. It's time to align our strategies with the aspirations of the nation, ensuring sustainable and inclusive growth that resonates across all demographics.
NationPress
30/08/2025
Frequently Asked Questions
What are the key recommendations from the HSBC report?
The HSBC report suggests a shift from solely relying on monetary and fiscal support to focusing on structural reforms to achieve aspirational growth.
What are the current monetary policies in India?
The RBI has maintained the repo rate at 5.5% and has implemented various liquidity measures, including a 100 basis points reduction in the repo rate.
How does fiscal spending impact growth?
Increased fiscal spending, especially on capital expenditure, is essential for stimulating growth, although opportunities for further stimulus may be limited.
What role do trade reforms play in economic growth?
Trade reforms, including tariff reductions and enhanced FDI, are critical for improving the business environment and driving growth.
What does the report say about inflation forecasts?
The RBI has revised its inflation forecast down to 3.1% for FY26 but expects it to rise to 4.9% in Q1 FY27 due to low base effects.
