RBI expects govt to move on fiscal consolidation

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Published: June 6, 2019 7:54:39 PM

The Reserve Bank has been very watchful on the fiscal deficit front both because of its impact on its core mandate of inflation and also from a macro stability perspective.

It can be noted that the government has had to rework fiscal targets especially during the latter part of the first five years as growth seemed to trail.

The Reserve Bank expects the government to continue to be “broadly” prudent on the fiscal side, governor Shaktikanta Das said Thursday. He said Prime Minister Narendra Modi’s first term also saw the government “broadly” following the fiscal glide path.

It can be noted that the government has had to rework fiscal targets especially during the latter part of the first five years as growth seemed to trail.

“The government has broadly maintained the fiscal deficit glide path and we expect it to remain broadly fiscally prudent going forward,” Das told reporters.

The Reserve Bank has been very watchful on the fiscal deficit front both because of its impact on its core mandate of inflation and also from a macro stability perspective.

Das said the first term of Modi government got down the fiscal deficit from 4.5 to 3.4 percent.

He said the government had come down between March and May due to the general elections, which also impacted liquidity in the system but public spending has re-started, and systemic liquidity is in surplus.

Significantly, the monetary policy review statement did not have any mention on fiscal consolidation, in a departure from the earlier policies. The statement underlined “political stability” as one of the positive factors that will help the sagging growth, which hit a five-year-low of 5.8 percent in the March quarter, pulling down the full-year growth to 6.8 percent for FY19.

Meanwhile, giving a peek into the chemistry between North Block and the Mint Road, which have seldom shared warm ties, Das said he has worked with finance minister Nirmala Sitharaman when she was in the finance ministry as a minister of state and he was serving as a secretary in the first term of the Modi government.

He said the Bimal Jalan panel, which has been set up to fix the appropriate economic capital framework for RBI, will be submitting its report “very shortly” even though it has sought more time.

Seeking to refute speculations surrounding the panel, he said he does not “interfere” in its working and asserted that the committee is working “independently”.

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