If the Reserve Bank of India hikes the policy rates against the backdrop of the mounting geopolitical risks and inflationary pressures, the growth recovery process may slow down. At the same time, keeping the status quo on policy rates for a prolonged period could catalyse the de-anchoring of inflationary expectations. The Union Budget 2022–23 has accommodated high fiscal deficits and has emphasised on “crowding-in” effects of public infrastructure investment. The intensity of global macroeconomic uncertainties on economic recovery in India can be lessened through sustainable fiscal and monetary policy coordination.
Lekha Chakraborty (Sat,) studied this question.