The Centre has once again nudged the RBI policymakers to cut rates ahead of its three-day meeting which starts on Wednesday.

Finance secretary Tuhin Kanti Pandey said the government has done its bit by announcing plans to cut the fiscal deficit to 4.4 per cent of GDP next fiscal. Now, the RBI needs to do its bit by cutting rates.

“The fiscal policy and the monetary policy need to work in tandem, not at cross-purposes... because a lot more benefit will come also with monetary easing, if we are able to maintain inflation control,” he said.

“It is very important to be very clear that we (government) have to remain within a certain fiscal regime. We have, to that extent, aided the monetary authorities to say that if they (RBI) have to do what they have to do, we are supportive,” Pandey said at an Assocham post-budget interaction on Tuesday.

He acknowledged the impact of currency movements on inflation. “Depreciation of the rupee brings imported inflation, but it also enhances export competitiveness,” he said.

“Rupee is in a free-float system. External factors are at play. The RBI is watching, we are watching,” Pandey said.

Madan Sabnavis, chief economist at Bank of Baroda, said a rate cut appears likely given the government’s pro-growth budget and expectations of easing inflation.

Global tax pact

India will evaluate the benefit of joining the OECD’s global tax deal as the US’s decision to withdraw from such a global pact has made it “impractical to implement”, Pandey said.

US President Donald Trump on January 20 in a Presidential memorandum had said that the “Global Tax Deal have no force or effect within the United States”, thus nullifying the progress made so far by the Organisation for Economic Cooperation and Development (OECD) to bring 140 countries on the same platform to levy a minimum 15 per cent tax on profits of multinational corporates.

To a question on what would be India’s stand on the global tax pact, Pandey said the US exit has added a lot of uncertainty and if the United States is not joining it then such a pact doesn’t work out.