RBI’s Inflation Target Remains Credible As Expanding Supply Eases Pressure: S&P

India's retail inflation surged to a 14-month high of 6.21 per cent in October, exceeding the RBI's tolerance band, primarily due to rising food prices. This was up from 5.49 per cent in September

S&P Global Ratings said on Wednesday that India’s supply capacity continues to grow rapidly, which will help alleviate inflationary pressures. Vishrut Rana, Senior Economist for Asia Pacific at S&P, noted that the Reserve Bank of India’s (RBI) monetary policy and inflation target remain credible and that the central bank should be able to manage inflation expectations. “That remains a manageable challenge,” he added.

India's retail inflation surged to a 14-month high of 6.21 per cent in October, exceeding the RBI's tolerance band, primarily due to rising food prices. This was up from 5.49 per cent in September.

"... As long as economies' supply capacity continues to expand pretty quickly, which is happening in India at the moment with emphasis on manufacturing infrastructure, etc, we expect inflationary pressure should be contained," Rana said at the Asia-Pacific Credit Outlook 2025 conference.

The Reserve Bank of India (RBI), which is tasked by the government with keeping inflation within a target range of 4 per cent (+/- 2 per cent), has projected retail inflation to be 4.5 per cent for the current fiscal year. "For policymakers and households to balance (consumption and sustainable growth) is to make sure that everyone spends within the means, and that can increase savings," Rana said.

He noted that consumption is a vital driver of the Indian economy, with private consumption contributing to more than 55 per cent of overall economic growth. "We do see a strong consumption-driven growth outlook for the economy. Overall, infrastructure is another component of growth. Urban consumption has been the key driver of growth over the past couple of years," Rana added.

He highlighted that the Indian economy is largely domestically driven, with around 85 per cent of it reliant on domestic demand. This means that consumer spending will continue to be a key driver of growth in the future. He also emphasised that boosting agricultural productivity will be crucial to sustaining consumption growth moving forward.

Additionally, Rana stressed the importance of upskilling the workforce, particularly as the focus shifts towards artificial intelligence and digitalisation. "One issue has been propping up, and we hear about increasingly, is how the rise of artificial intelligence is creating a very difficult labour market for jobs entrants and this is a key challenge for economy to resolve going forward. And policy will have a role to play in upskilling workforce, and tech transition," Rana added.