FM Sitharaman to address RBI board on February 15, assuage deficit concerns

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February 5, 2020 5:45 AM

The finance ministry will also apprise the board of various budget proposals critical to the financial system, including the need for the regulator to extend the loan re-structuring scheme for MSMEs by a year to March 2021.

Sitharaman has already stated that the government wouldn’t just splurge money but adopt a prudent expenditure policy. (File image)Sitharaman has already stated that the government wouldn’t just splurge money but adopt a prudent expenditure policy. (File image)

Finance minister Nirmala Sitharaman will address the central board of the Reserve Bank of India (RBI) on February 15 in a crucial meeting that comes after the government, in the Budget for FY21, invoked an escape clause in the FRBM law to let the fiscal deficit breach the targets by as much as 50 basis points each for this year and the next.

The minister may seek to reassure the RBI that funds will be used to finance productive spending and create assets, which won’t really add to the underlying inflationary pressure in the economy. The pledge that the government won’t resort to an expansionary fiscal policy will be aimed at assuaging fears of the monetary policy committee (MPC), even beyond its bi-monthly review meeting on Thursday. Sitharaman has already stated that the government wouldn’t just splurge money but adopt a prudent expenditure policy. The revised fiscal deficit targets now stand at 3.8% for this year and 3.5% for the next.

The finance ministry will also apprise the board of various budget proposals critical to the financial system, including the need for the regulator to extend the loan re-structuring scheme for MSMEs by a year to March 2021. Discussions could also veer around the proposed sharp hike in the bank deposit cover from the current Rs 1 lakh to Rs 5 lakh, the plan to bring in regulatory capital norms for cooperatives after the PMC Bank crisis and even the listing of LIC and stake sale in IDBI Bank, among others. The government also plans to include guarantee on pass-through certificates for NBFCs in its partial guarantee scheme.

The meeting, which typically takes place in Delhi instead of Mumbai, is a customary one in which the finance minister usually discusses various Budget-related proposals on key issues, ranging from macro-economic stability to banking.

Also, while the government hasn’t budgeted for any interim dividend from the central bank for the current fiscal (beyond what has already been received by it), a deliberation on the scope for such a transfer, among others, can’t ruled out, a source told FE.

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