Lit­tle fis­cal room for govt, but rates can drop: RBI guv

Cites Growth De­cel­er­a­tion, In­fla­tion That’s Below 4% Tar­get

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Mum­bai: RBI gover­nor Shak­tikanta Das said on Thurs­day that the gov­ern­ment has lit­tle room for fis­cal ex­pan­sion. But he added there is more room to cut rates given the growth de­cel­er­a­tion and sta­ble in­fla­tion that is likely to stay below tar­get for a year or so. The gover­nor also warned of down­side risks on the ex­ter­nal sec­tor aris­ing from deep­en­ing of the global slow­down, es­ca­la­tion of trade and geopo­lit­i­cal ten­sions, and volatile in­ter­na­tional crude prices.

Ac­cord­ing to Das, de­vel­op­ments aris­ing out of the drone strikes on Saudi oil fa­cil­i­ties are still play­ing out. “As­sum­ing that oil prices, which shot up, con­tin­ues to be in this range it will not be a big is­sue as far as price sta­bil­ity is con­cerned, ” said Das.

Given the chal­lenges, Das said that the gov­ern­ment needs to per­se­vere with structu

Any rate cut in the US would mean more in­flow of funds…as reg­u­la­tor, we have to be care­ful in mon­i­tor­ing in­flows and man­ag­ing ad­verse im­pact of re­verse flow

On Fed Rate Cut

On Saudi Drone At­tacks

ral re­forms in var­i­ous sec­tors of the econ­omy to un­lock pro­duc­tiv­ity and com­pet­i­tive­ness gains. “The over­ar­ch­ing ob­jec­tive should be to keep the cur­rent ac­count deficit within sus­tain­able lim­its and fi­nanced by a pru­dent mix of debt and eq­uity flows,” said Das.

“So far as the fis­cal side is con­cerned, the gov­ern­ment has by and large re­mained pru­dent and most of the an­nounce­ments have been non-fis­cal. They have not an­nounced any coun­ter­cycli­cal mea­sures that will re­quire fis­cal ex­pan­sion. I think the gov­ern­ment’s fis­cal space is it­self very limited. The fis­cal deficit is at 3.3%,” said Das, speak­ing at a Bloomberg event in Mum­bai.

He added that there is a lot of dis­cus­sion in the me­dia about bor­row­ing by pub­lic sec­tor units. “Both put to­gether, there is al­ready very limited space as far as fis­cal is con­cerned. But what is the in­ter­nal po­si­tion of the gov­ern­ment with re­gard to tax col­lec­tions? How much ex­pen­di­ture is likely to be ma­te­ri­alised? That is some­thing the gov­ern­ment has to take a view,” said Das.

On the like­li­hood of rate cuts, Das said, “When we see that the price sta­bil­ity is main­tained, and in­fla­tion is much below the 4% man­date and is ex­pected to be so in the next 12 months hori­zon, there’s room for more rate cuts, es­pe­cially when growth has slowed down.” The gover­nor’s state­ment comes against the back drop of four suc­ces­sive rate cuts this fis­cal.

| | Un­less some­thing dra­matic hap­pens, I think the sit­u­a­tion can be man­aged | We are mon­i­tor­ing top 50 fin cos. As and when sit­u­a­tion arises, we will use the new pow­ers. First pref­er­ence will be for mar­ket mech­a­nism to re­solve is­sues | Slow­down seems cycli­cal, but struc­tural re­forms are re­quired in land, labour & agri mar­ket­ing. There is a lot of in­ter­ac­tion with the govt on this

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