Indian government likely to stick to fiscal deficit target says RBI Governor

Governor Shaktikanta Das told CNBC-TV18 on Monday that the Indian government is likely to stick to its fiscal deficit target as set out in the budget, and that there may not be a need to increase government borrowing just yet, as per Reuters reported.

India announced a series of modifications to the tax structure on key commodities on Saturday in an effort to protect customers from rising prices amid high inflation.

The actions, according to experts, will undoubtedly raise fiscal concerns and cast doubt on the government’s ability to fulfil its deficit target of 6.4 percent of GDP for 2022-23, said Reuters.

“There is no one to one co-relation between the increase in government expenditure… and the need for additional borrowing. These are all figures which keep moving throughout the year,” Das said.

“My sense is that the government will maintain the fiscal deficit target given in the budget. How they will do it, I will not be able to answer but the sense I have in my several discussions is that the government would be sort of committed to maintaining the fiscal deficit,” he added.

The fiscal and monetary authorities, according to Das, have entered another phase of coordinated action to combat inflation, Reuters said.

In April, India’s annual retail inflation increased to 7.79 percent from a year earlier, remaining beyond the central bank’s tolerance limit for the fourth month in a row.

Two government officials told Reuters that the Indian government is considering investing an additional 2 trillion rupees ($26 billion) in the fiscal year 2022/23 to cushion consumers from rising prices and combat multi-year high inflation.

Das stated that the RBI intends to hike rates in the coming meetings, if not the next one in June.

“The RBI remains committed to ensuring a non-disruptive completion of the government borrowing programme and ensuring an orderly evolution of the yield curve,” Das said.

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Das stated that the country’s macroeconomic fundamentals remain robust and that the central bank was confident of being able to finance the current account deficit, albeit it will act to prevent the rupee from depreciating too much, said Reuters.

He also stated that the RBI does not have a specific exchange rate target and will merely intervene to reduce volatility.

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