India’s fiscal deficit adheres to budget target: RBI Governor

April 15, 2019

Reserve Bank of India (RBI) Governor Shaktikanta Das has said the gross fiscal deficit has adhered to budgetary targets, and that the current account deficit is expected to be around 2.5 per cent of the GDP in 2018-19.

Das said this earlier this week while speaking at the “Governor Talks” event organised on the sidelines of the World Bank-International Monetary Fund (IMF) Spring Meetings in Washington DC.

The Governor’s statement is the first official confirmation at a senior level of the government achieving the fiscal deficit target of 3.4 per cent in the previous fiscal 2018-19.

The Controller General of Accounts (CGA) normally releases the fiscal deficit figures of the previous fiscal by May 15.

Das also said the country’s current account deficit (CAD) in 2018-19 is expected to come in at around 2.5 per cent of the gross domestic product (GDP).

According to the government, India’s balance of payment situation eased mainly on account of falling global oil prices.

RBI, while deciding its rate of interest, also takes into account these macro data indicators of the Finance Ministry.

Earlier this month, the RBI cut the repo, or its short-term lending rate for commercial banks, by 25 basis points to 6 per cent, and lowered the current fiscal’s GDP growth forecast to 7.2 per cent.

“The rate cut is in consonance of achieving the medium term objective of maintaining inflation at the 4 per cent level while supporting growth,” the statement, announcing the RBI’s first bi-monthly monetary policy review of the fiscal, said.

Meanwhile the RBI Governor Shaktikanta Das on Friday proposed to his peers on the sidelines of an International Monetory Fund (IMF) event in Washington that the monetary policy can be well served by calibrating the size of the policy rate, instead of the 25 basis points (bps) unit.

Das said that “if the unit of 25 basis points is not sacrosanct and just a convention, monetary policy can be well served by calibrating the size of the policy rate to the dynamics of the situation and the size of the change itself can convey the stance of policy”.

He further explained that if easing of monetary policy is required but the central bank prefers to be cautious in its accommodation, a 10 bps reduction in the policy rate would perhaps communicate the intent of the authorities more clearly than “two separate moves − one on the policy rate, wasting 15 basis points of valuable rate action to rounding off, and the other on the stance, which in a sense binds future policy action to a pre-committed direction.”

“Likewise, in a situation in which the central bank prefers to be accommodative but not overly so, it could announce a cut in the policy rate by 35 basis points if it has judged that the standard 25 basis points is too little, but its multiple, i.e., 50 basis points is too much,” Das said.

The RBI’s revised stress assets resolution circular is likely to be out after the elections to clear the model code of conduct, and also the regulator may need time to have consultations with legal experts, industry and government before bringing the framework out, official sources said.

This would mean that the widely anticipated RBI circular would not be issued before June. The delay could also halt resolution of several stressed assets as lenders are looking for clear directions from the banking regulator before moving ahead to resolve accounts.

“After the court judgement, the RBI is extra careful to issue any other circular without proper consultation and vetting. This could result in some delays, but ultimately better regulations would flow,” said an official source.

The Supreme Court on April 2 struck down a February 12, 2018 circular of the RBI that asked banks to initiate insolvency process against companies even if there was a day’s delay in payment of dues.

As per the circular, banks were told to start the resolution process as soon as a borrower defaulted on a term loan and were given 180 days to cure it, failing which the account would have to be referred to the National Company Law Tribunal (NCLT).

While the new circular on debt resolution is still being discussed and debated, it is expected that RBI is likely to adopt a more accommodative approach towards resolution of stressed assets in the new circular.

Sources said the major contention in the controversial February 12, 2018, circular that got challenged in court leading to the quashing of the circular will be done away with in the new circular.

Instead, banks will be given more time to identify and qualify an account as bad debt and also be given more time to resolve a case.

The RBI is likely to retain the main contours of its February 12, 2018 circular while making the referral to NCLT non-compulsory, sources told IANS.

Gulftoday