India, June 7 -- If there was any misconception that India's economic policy establishment had become complacent about the economy's growth prospects after a stellar 7.4% GDP growth in the March quarter, the latest Monetary Policy Committee's (MPC) decision has quelled it. Price stability is only a necessary and not a sufficient condition to ensure growth, RBI Governor Sanjay Malhotra said unequivocally in his statement released after the MPC meeting on Friday. While MPC has retained the GDP growth forecast for 2025-26 at 6.5%, which is what it was in its April resolution, it has administered a 50-basis point reduction in its policy rate. This is double what markets were expecting - and is a strong signal that the economy needs a booster dose of strong medicine, not an incremental one. To be sure, MPC's action should be seen as more a frontloading of monetary easing than an intent to lower interest rates further. This is what explains the change in the policy stance from accommodative to neutral. Markets have cheered this move, and India's benchmark stock market index closed 0.9% higher on Friday. With the new income tax slabs in place, a quick transmission of the new policy rates should provide additional tailwinds to households' disposable income even as a good monsoon boosts rural demand. This is good news for the economy's growth prospects in the short-run. However, it remains to be seen whether this policy and sentiment boost manages to kickstart the dormant private capex cycle in the economy. RBI's aggressive easing has also been facilitated by a benign inflationary environment. The annual inflation forecast for 2025-26 now stands at 3.7% instead of 4% in the April resolution. That the governor's statement has taken the effort to describe India's relative economic advantage in terms of a 5x3x3 matrix of strong balance sheet in five sectors (corporates, banks, households, government and the external sector), stability on three fronts (price, financial and political) and opportunities through three Ds (demography, digitalisation and domestic demand) shows that the policy arm wants to send a strong message to markets, both domestic and foreign, about India's future economic prospects in the hope of positioning it better for harvesting growth opportunities outside the domestic economy. However, there is also a realisation, and rightly so, that external headwinds to growth are not going away anytime, notwithstanding India's progress in making some trade deals even as others (including with the US) are in the works. Without prejudice to the ongoing policy efforts on the trade front, benefits might not necessarily materialise. The Trump administration in the US continues to behave in an erratic manner in its dealings both inside and outside the country. Getting a trade deal with the US is only part of dealing with the current challenge as Trump's economic policies, especially on the fiscal front, could also send shock waves in financial markets. Such volatility is bound to affect growth in other countries, India included. The key takeaway from the latest MPC decision is threefold. Monetary policy has replaced fiscal policy as the growth cushion in the Indian economy. Economic policy is working on the external but banking on the domestic to power the economy. And, the monetary and fiscal arms are in sync with each other to ensure that at least one of the policy drivers continues to pursue growth while the other protects stability. Given the circumstances, this is the best possible situation....