Any increase in global commodity prices is a cause for concern, says Shashanka Bhide, member of the Monetary Policy Committee

Any change in international commodity prices is a cause of concern for India's rate-setters as a relatively benign global environment has given local policymakers some respite in the face of stubborn domestic food price pressures, said Monetary Policy Committee member Shashanka Bhide. As his term on the MPC comes to an end, Bhide expressed hope that the new members of the panel would benefit from updated weightings in the consumer price index basket. Edited excerpts of an interview with Bhaskar Dutta:

As you highlighted in the recent MPC minutes, RBI's surveys of urban households continue to show rising inflation expectations. Do high food prices pose a risk of broader inflation in the future?

Persistently high food inflation is a risk. We have benefited from relatively benign international commodity price conditions. Any change in energy and other input price scenarios would be a cause for concern.In the recent MPC minutes, you noted that private investment indicators continue to show a mixed trend. When might we see a sustained revival in private investment?
Unfortunately, there is not enough information on capital expenditure in the public sector. From the quarterly national accounts data, we know only about capital formation at the aggregate level. The information available from the corporate sector is on expenditure on fixed assets. The pattern of private investment up to 2022-23 shows that the growth of capital expenditure has declined. Data on infrastructure, construction and import of capital goods in 2023-24 reflect similar dynamics as in 2022-23. Going forward, an acceleration in consumer demand and exports will provide the impetus for investment.

How could monetary policy try to strike a balance between containing inflation and encouraging consumption to promote growth? Some argue that real interest rates are currently too high.
One argument, of course, is that low inflation should increase consumer demand and boost growth. Or at least help sustain higher demand. Therefore, it is important to prioritize inflation targeting when growth momentum is strong. Higher real interest rates would not increase investment demand. However, the recent rise in real interest rates is due to the decline in the inflation rate.

Your tenure at the MPC was marked by an unprecedented combination of challenges – the pandemic, an aggressive US tightening cycle and wars in several countries. How would you describe your experience as one of the shapers of India's interest rate policy as you come to the end of your tenure?
Our MPC's tenure actually coincided with quite difficult economic conditions. I am sure that economic conditions will always be difficult. I suppose decisions are relatively easy to make in a crisis situation and we had low interest rates even when inflation was high and kept interest rates high when inflation was easing. It has been an honour to be a member of this important policy institution. I believe that the MPC framework is very valuable as it provides for more transparency and discussions from different perspectives to arrive at a decision. The objectives are quite clear and the tool is one. We benefited from significant policy coordination which made our decisions more efficient. I hope that the new body will benefit from the CPI with updated weights.