Govt’s commitment to fiscal consolidation extremely strong
Economic affairs secretary Subhash Chandra Garg, one of the chief architects of the budget, said the government has not shifted any expenditure to the next fiscal year to keep deficits under check. In an interview, Garg said providing higher spending for the farmers’ income support scheme has led to lower allocation for capital expenditure next year. Edited excerpts:
Analysts fear that the sharp increase in gross borrowing next fiscal year may lead to increase in bond yields?
For the current year, there’s actually a reduction in market borrowing by ₹1.06 trillion. We haven’t done buyback programme of ₹71,000 crore. We are funding additional ₹51,000 crore debt through small savings. For next year, we have a large repayment programme which is not a net draw from the resources of the market. Therefore, it doesn’t affect. The net market borrowing is very much under control and there is a small increase.
The budget is also said to be inflationary with higher spending next year. Will it not force the Reserve Bank of India to go for a longer pause on interest rates?
The interest rate part I will not answer because that is for the monetary policy committee to decide. As far as higher fiscal deficit is concerned, it is 0.3% and its relationship to inflation is not that sharp at all. The inflation in the Indian economy is relatively very low today. It’s nowhere close to the 4% target. It can go up to even 6% within the band of 2 percentage points. So the deficit maintained at the same level next fiscal is in line with the glide path. It’s implication for inflation is minuscule.
Moody’s has called it credit negative on sovereign rating? Is that not worrying?
They haven’t looked at the final print perhaps. It’s only 0.02% increase in deficit. They should take note that we are on the glide path. We have shown our commitment that by 2021, the fiscal deficit will be brought down to 3% and therefore the government’s commitment to fiscal consolidation is extremely strong.