RBI Governor

RBI Governor Says No Reason To Doubt Govt Will Meet Fiscal Deficit Targets

4/5 - (1 vote)

Throwing his weight behind Finance Minister Nirmala Sitharaman’s budget numbers, Reserve Bank Governor Shaktikanta Das has said that there is no reason to doubt that the government will be able to cut fiscal deficit to 3.5 per cent of the GDP in the fiscal beginning April 1.

Das said the government has remained within the limits set by the Fiscal Responsibility and Budget Management (FRBM) Committee for the budget deficit. Sitharaman missed deficit target for the third year in a row, pushing shortfall to 3.8 per cent of the GDP in the current fiscal as compared to 3.3 per cent previously planned. The fiscal deficit target for the coming fiscal year starting April 1, has been fixed at 3.5 per cent.

The fiscal deficit is the shortfall in a government’s income compared with its spending. It essentially means that the government is spending beyond its means.

With regard to the fiscal management of the government, the government has remained within the recommendations FRBM committee, Das said. So, therefore, the excess fiscal deficit has been restricted to 0.5 per cent. The government has adhered to that and a large part of the financing of fiscal deficit next year will come from small savings. The FRBM committee headed by N K Singh had recommended fiscal deficit to be cut to 2.8 per cent in 2020-21 fiscal and to 2.5 per cent by FY2023.

The panel had suggested an escape clause in case of overriding consideration of national security, acts of war, calamities of national proportion and collapse of agriculture severely affecting farm output and incomes. Under this, a deviation from the stipulated fiscal deficit target can be taken but not in excess of 0.5 percentage points in a year.

Das said there is no reason to doubt that the fiscal deficit for the next year would be met.

There is no reason for anyone to doubt that number. The Budget has been presented just about a fortnight ago. There is no reason to disbelieve that number, he said.

The fiscal slippage announced in the government’s new FY2021 budget is modest relative to its previous targets. The RBI governor said the Budget for 2020-21 had announcements that certain bonds will be opened up for non-resident investment without any limit.

Besides, an announcement has been made in Budget for raising limits for corporate bonds from 9 per cent to 15 per cent, he said.

So, therefore, there are a lot of foreign resources which are going to come into India. Indian corporates are also accessing a lot of money from foreign sources today through ECB.

The RBI, he said, will ensure that its borrowing programme is undertaken in a non-disruptive manner.

So, as the debt manager of the government, the RBI will definitely try and ensure that the borrowing programme is undertaken in a non-disruptive manner, he said.

Sitharaman’s second budget contains some measures which may support GDP growth in the medium-term, including reduced individual income tax rates, some easing of restrictions on foreign portfolio inflows, continued focus on public infrastructure spending, and schemes of which the details remain to be announced to encourage manufacturing in the electronics and textiles sectors.

Rating agencies have also backed the budget numbers. Fitch Ratings earlier this month said that the assumptions in the budget, including nominal growth of 10 per cent and a rise in revenues by 9.2 per cent were broadly credible although there were risks to the downside.

In particular, reductions in the corporate tax rate, as previously announced, and new cuts in income tax rates are likely, in our view, to cause tax revenues to fall in the short run, before any potential medium-term benefits materialise; the divestment target appears optimistic, at over three times the estimated realisation in FY20, it had said.

The government in September last year cut the corporate tax rate to 22 per cent from 30 per cent and in the budget for 2020-21 announced reduction in personal income tax rates for those who were willing to give away present exemptions and rebates.Indian economic growth plunged to an 11-year low in the July-September quarter when it clocked 4.5 per cent expansion.

Greater fiscal transparency around off-budget financing is welcome, as the new budget now explicitly recognises borrowing from the National Small Savings Fund of 0.8 per cent of GDP in both FY20 and FY21, e g to finance food subsidies, although this is not incorporated in the headline figure (which would be 4.6 per cent of GDP in FY20 instead of 3.8 per cent), Fitch had said.

SOURCE: bit.ly/2SEqsBH

Leave a Comment

Your email address will not be published. Required fields are marked *