The reduction in fiscal deficit target from 5.9 per cent to 5.1 per cent in the Budget estimates is a positive. However, this in itself is not enough to change the monetary stance, said Dr Subir Gokarn, Deputy Governor, Reserve Bank of India.
The fact that a clear road map for fiscal consolidation has been spelt out by the Finance Minister provides some consolation, said Dr Gokarn.
“While it (roadmap for fiscal consolidation) is a positive development, monetary stance is not based on one factor. Fiscal numbers are not the only things that will change the policy stance. But a reduction in deficit is what we wanted from our side. There are other factors such as growth considerations and oil prices,” he pointed out.
Speaking to reporters after the Budget, Dr Gokarn explained that when compared to the 13th Finance Commission's roadmap for fiscal consolidation there is still some gap. But the transition of fiscal deficit from 5.9 per cent to 5.1 per cent is a significant improvement.
He observed that the overall reduction in fiscal deficit is now driven more by increase in tax revenues rather than reduction in expenditure.
With that as the major source of fiscal correction, the reliability of the consolidation process goes up.
The cap of two per cent of GDP on subsidies is also a positive as it provides an overall support to the fiscal consolidation process, he added.
“The commitment to cap subsidies is realistic,” he said.
Mr H.R. Khan, Deputy Governor, RBI, said that the higher government borrowing programme for the next financial year would be a challenge.
The RBI would use tools like Open Market Operations and floating rate bonds to manage the programme.