Tight Monetary Stance to Offset Fiscal Slackness: Subbarao
Facebook Twitter google+ RSS Feed

Tight Monetary Stance to Offset Fiscal Slackness: Subbarao

Thursday, 30 August 2012, 06:55 Hrs
22
cmt right
14
Comment Right
42
cmt right
7
cmt right
Printer Print Email Email
New York: Highlighting the need for fiscal consolidation, Reserve Bank of India (RBI) Governor D Subbarao has said the central bank’s tight monetary stance is directed towards offsetting fiscal slackness.

"RBI (is) having to take on a tight monetary stance to offset fiscal slackness," he said yesterday while delivering a lecture at Cornell University on 'India in a Globalizing World: Some Policy Dilemmas'.

RBI raised policy rate 13 times between March 2010 and October 2011 in its bid to bring down inflation. It, thus, increased interest rate by 3.75 percent during that period. In its last policy review in July, RBI chose to keep interest rate unchanged citing inflationary pressure. In 2011-12, the fiscal deficit had ballooned to 5.76 percent of GDP on account of high fuel subsidy outgo.

The government aims to bring down the fiscal deficit- the gap between expenditure and revenue collection – to 5.13 lakh crore or 5.1 percent of GDP in the current fiscal. Terming fiscal deficit as structural issue, Subbarao said “we have fiscal deficit in the face of current budget (revenue) deficit, implying borrowing is being used for consumption expenditure".

"Political economy – including federalism – challenges in reducing fiscal deficit," the RBI governor said. Analysts believe that fiscal deficit could breach 6 percent mark in 2012-13 in view of rising oil, food and fertiliser subsidy bills and lower revenue realization due to concerns of economic slowdown.

For the April-June period, the fiscal deficit rose to 1.9 lakh crore, or 37.1 percent of the 2012-13 target. Subbarao said fiscal deficit is bad for a number of reasons as it also exacerbates inflation.

"Even as investment has moderated, consumption remained strong benefiting from fiscal expansion. Fiscal deficit is adding to consumption demand," he said.
Source: PTI
Experts on SiliconIndia
Santhosh  K
Sr. Soft. Engg.
Oracle India
Nehal Vyas
Sr. Team Lead
Cyberoam Tech.
Rani Malli
Sr. Director
Philips
Sr. Executive
ISB
Vijay Balkrishna Konduskar
Business Consultant
Imans Web Tech
Dr L P  Sharma
Technical Director
NIC
Reena Khanna
Founder
Solitaireworld
Dellas  Asse
sys-network admin
Computer Station
Write your comment now
Submit Reset
SPOTLIGHT