Macro-economic stability: Government to focus on cut in debt ratio, says Subhash Chandra Garg

By: | Published: December 16, 2018 5:32 AM

Economic affairs secretary says not in talks with RBI on interim dividend; DIPP, commerce secretaries say regulators must be accountable.

Economic affairs secretary Subhash Chandra Garg, economy, indian economyEconomic affairs secretary Subhash Chandra Garg

With inflation concerns abating, the government’s focus would be to trim the elevated public debt-to-GDP ratio in the next four to five years to keep macro-economic stability intact, economic affairs secretary Subhash Chandra Garg said on Saturday.

According to Garg, the government and the central bank are in no discussion over the transfer of an interim dividend and that the central board of the Reserve Bank of India (RBI), which met on Friday, hasn’t yet set any agenda for its next meeting. “We still have the overhang of a large public debt. Most rating agencies give a lot of weight to the debt-to-GDP ratio. Going forward, that will be a focus area,” Garg said at an event organised by industry body Ficci.

Inflation, however, was “less of a worry now” though a spike in oil prices could potentially stoke price pressure. India’s debt-to-GDP ratio stood at around 68.5% in FY18 and the government intends to bring it down to 60% of GDP by FY25. Global rating agencies, including S&P and Fitch, have often cited India’s high public debt-to-GDP ratio as one of the key reasons for their decision not to upgrade its sovereign rating.
The secretary said the process is still on to set up a committee to examine the economic capital framework (ECF) that governs the RBI surplus transfer.

The issue has been a sore point between the government and the central bank in recent months and, consequently, the RBI’s central board last month decided to set up the committee.

The RBI in August announced the transfer of Rs 50,000 crore to the Centre from its 2017-18 (July-June) surplus. Given that the amount included Rs 10,000 crore transferred in March as an interim measure to aid the Centre’s effort to contain the FY18 fiscal deficit, the Centre will have only Rs 40,000 crore available for FY19, against the finance ministry’s estimate of Rs 45,000 crore.

Participating in the discussion at the Ficci event, commerce secretary Anup Wadhawan allayed undue fears of the damaging impact of free trade agreement (FTA) on trade balance. India doesn’t have an FTA with China; still its largest trade deficit is with the second-largest economy (around $63 billion in FY18). So, it’s not FTAs but the lack of competitiveness that contributes to our trade deficit, he stressed.

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To a query over the way to resolve conflicting positions held by government departments and sectoral watchdogs, department of industrial policy and promotion secretary Ramesh Abhishek, who was earlier the chairman of the then commodity markets regulator FMC, said regulators and public agencies must work together on specific sets of goals and must also be accountable. Wadhawan said, ironically, a key task of the regulators would perhaps be to deregulate and they shouldn’t micro-manage everything. The relation between the government and the regulators came under heightened public glare in recent months after banking regulator RBI and the finance ministry differed on a host of vexed issues, which culminated in then governor Urjit Patel’s surprise resignation this week on “personal reasons”.

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