Economic Stability and Macroeconomic Management in India: Monetary Policy, Inflation and Fiscal Sustainability

Economic stability is essential for sustainable economic growth, financial confidence and long-term development. In developing economies such as India, maintaining price stability while supporting output growth and productive investment presents an important macroeconomic policy challenge. This paper examines the theoretical foundations and policy implications of macroeconomic stabilisation in India, with particular attention to monetary policy, inflation management, household expectations, fiscal sustainability and productive public investment. The study adopts a theory-informed, descriptive and policy-analytical methodology based on established macroeconomic literature and selected official economic statistics. The Economic Survey 2025–26 reported a first advance estimate of 7.4 per cent real GDP growth for FY2025–26 and average headline consumer price inflation of approximately 1.7 per cent during April–December 2025. These indicators provide an important context for examining the relationship between growth and price stability. Drawing on Keynesian macroeconomics, Friedman's monetary analysis, Hall's consumption theory and Woodford's expectations-based monetary framework, the paper argues that effective stabilisation requires coordination between monetary and fiscal policy. It distinguishes demand-driven inflation from supply-side price pressures and examines the limitations of relying exclusively on interest-rate adjustments. It also highlights the importance of productive public investment in strengthening infrastructure, agricultural supply chains and long-term productive capacity. The paper proposes an integrated framework connecting price stability, output stability, monetary credibility, fiscal sustainability and productive investment. It concludes that India's macroeconomic resilience depends on credible monetary management, efficient public expenditure and institutional coordination. The proposed framework provides a foundation for future empirical research on the interaction between monetary policy, inflation and economic growth.