Room for more rate cuts: Das
■ Says Govt has little fiscal space to act
Mumbai, Sept. 19: After surprising everyone with four successive rate cuts this year, Reserve Bank Governor Shakti-kanta Das Thursday said “there is more room” to do so given the growth deceleration and stable inflation that is likely to stay below target for a year or so.
However, the governor was quick to add that there is little fiscal space for the government to unveil any countercyclical measures to boost the sagging growth and the only way to revive the growth engine is to front-load the budgeted capex, hinting that only an easy money policy can help salvage the situation.
Since assuming charge mid-December, the Das-led rate- setting panel has delivered four successive rates cuts, with the fourth one last month being the most surprising and unconventional one as he chose to deliver a 35 bps repo cut.
With that the RBI has delivered a cumulative 110 bps repo reduction since February, yanking down the key benchmark rate to a nine-year low of 5.40 per cent.
“When we see that the price stability is maintained and inflation is much below the 4-percent mandate and is expected to be so in the next 12 months horizon, there's a room for more rate cuts especially when growth has slowed down,” Das told Bloomberg India economic summit this evening.
On the shrill calls from industry for fiscal measures in the form of tax cuts, Das said, “the government must front-load the budgeted spending as it has little fiscal space for any counter-cyclical measures to boost growth.”
Stating that there is little space for fiscal expansion, Das said, “so far as the fiscal side is concerned, the government has by and large remained prudent. They have not announced any countercyclical measures that would have lead to fiscal expansion. Most of these things announced are non-fiscal.
“I think the fiscal space is itself very limited. Fiscal deficit at 3.3 percent borrowings by PSUs both put together there is very little space. But what is the internal position of the govt with regard to tax collection, how much expenditure is likely to be materialised, that is something the govt has to view,” Das said. After reviewing the health of the public sector banks (PSBs) with their chiefs, Finance Minister Nirmala Sitharaman on Thursday said the Centre has asked all PSBs to lend more.
In a move provide more credit to borrowers, including homebuyers and farmers, she said PSBs would hold ‘shamiana meetings’ with non-banking financial companies (NBFCs) and retail borrowers in 400 districts beginning next week. “The public meetings will be held in two tranches. The first will be held between September 24 and September 29 in 200 districts, and another 200 districts will be covered between October 10 and October 15,” she said.
“Schedule banks will now show that they are indeed pushing liquidity to the NBFCs or directly to the customer,” she said.
“The idea behind this move is to ensure maximum credit disbursal during the festive season. Diwali, which falls in October this year, is considered as the biggest shopping season of the country,” she added.
During the public meetings, the government said that the credit would be provided for retail, agriculture, MSME and housing sector, among others. The minister also announced that banks have been asked not to declare any stressed MSME loan as NPA till March 31, 2020.
A government statement said banks’ loan disbursement to key sector remained robust, with disbursement of Rs 11.83 lakh crore done for the MSME sector in FY19 as against Rs 8.53 lakh crore in FY18. Banks disbursed Rs. 2.19 lakh crore for home loans in FY19 as against Rs 1.81 lakh crore in FY 2017-18, the statement said.