RBI says Budget in line with fiscal consolidation

The Reserve Bank of India said that the Budget 20010-11 presented by Finance Minister Pranab Mukherjee is in line with the path of fiscal consolidation and economic revival.

"From our point of view, one of the very important things is fiscal consolidation... Budget is more or less in line with that... It is a balancing act between (stimulus) withdrawal and need for fiscal consolidation," RBI Deputy Governor Usha Thorat told reporters here.

Mukherjee, as a part of stimulus exit, today hiked excise duties by 2 per cent to 10 per cent on all non-oil products and pegged the fiscal deficit for FY'11 at 5.5 per cent.

She said the RBI expects to carry out the government borrowings, pegged at Rs 3.45 lakh crore for the next fiscal, in a non-disruptive manner so as not to crowd out private borrowing.

"It seems that we will be able to manage the borrowing," Thorat said.

Announcing the Budget, Mukherjee said that the RBI will consider allowing banking licences to private entities and NBFCs meeting the required criterion, a move that will open the door to diversified conglomerates to set up banks.

Thorat said that the RBI would work on the guidelines towards the new proposal, keeping the basic principles of governance and ownership intact. "We have to work on it... I think the basic principle of ownership and governance will remain unchanged...All the principles of ownership and governance that has been part of the policy will be obviously taken into account," Thorat said.

At present, no single entity or group of related entities have shareholding or control, directly or indirectly, in any bank in excess of 10 per cent of the paid-up capital of the private sector bank.

On the government decision to set up the apex-level Financial Stability and Development Council, Thorat said the operational structure of the new body will be similar to the existing High Level Coordination Committee on Financial and Capital Markets but the details are yet to be worked out.

"This (council) will monitor the system and risks and will be similar to the HLCC," Thorat said.

Signaling an exit from its accommodative policy stance, the RBI had hiked its cash reserve ratio — the portion of deposits banks have to park with it — by 0.75 per cent and is widely expected to hike its policy rates moving ahead in the year.