Prime Minister’s Economic Advisory Council chairman C Rangarajan said that the Centre’s fiscal deficit would be within the 5.5% target in 2010-11. He, however, cautioned that inflation would remain an area of concern, raising the inflation forecast to 7% by March-end. He said the Reserve Bank would continue to tighten the monetary policy as long as inflationary pressures remain in the economy.
“My own surmise is that the Reserve Bank of India will continue with tightening of the monetary policy if inflationary pressures remain high,” said Rangarajan on the sidelines of the launch of his book ? Federalism and Fiscal Transfers, which was co-authored by DK Srivastava, director Madras School of Economics. Even though inflation is supply-side driven, monetary action would be needed to contain it, he said.
?Fiscal deficit may be lower than what was Budgeted as revenues were good not only from the windfall from auction of third generation spectrum but also buoyant tax revenues,? said Rangarajan. While the Centre had Budgeted its fiscal deficit at 5.5% of the GDP in 2010-11, it is now estimated to be as low as 4.8% on the back of the higher GDP forecast by the Central Statistical Office. The CSO has projected GDP growth at 8.6% in the current fiscal.
RBI has already hiked rates seven times in the past one year and Subir Gokarn recently indicated that it would continue with its anti inflationary stance.