Axis Bank CEO and MD Amitabh Chaudhry has flagged the “unintended consequences” of India’s fiscal and monetary policies, pointing to their impact on state spending and credit growth. Speaking with Business Today editor Siddharth Zarabi at Davos, Chaudhry outlined the challenges as election-driven commitments test fiscal discipline.
“On the fiscal side, the government, rightly so, imposed conditions while giving money to state governments. But some states have not met those conditions, so funds remain unspent,” Chaudhry said. “I’m sure the government is looking at it.”
Addressing monetary policy, he noted that Reserve Bank of India (RBI) measures have slowed credit growth.
“Because of some micro tightening, the credit growth has come down. RBI is realizing liquidity is not there in the system,” he said. Recent currency interventions have further constrained liquidity, prompting the RBI to explore solutions. “They are now talking about how they can bring liquidity back,” he added.
Election promises, particularly cash transfer schemes and subsidies, are compounding fiscal pressures. With Delhi set to vote next month, spending on such schemes could reach ₹10,000 crore, equivalent to the capital’s health budget and 60% of its education budget. Capital spending as a share of GDP has halved from 1.1% in 2013-14 to an estimated 0.5% in 2024-25.
Delhi’s revenue surplus, already down from ₹14,457 crore to ₹4,966 crore last year, is expected to shrink further, while capital investments are projected to drop 29% to ₹5,919 crore this year.
Chaudhry, however, remains confident in policymakers. “The people in power are smart and watching what’s happening. I’m sure some measures will be coming our way,” he said. He also stressed the need to maintain fiscal discipline. “Letting go of fiscal discipline will not send the right signals across the world,” he said.