'Fiscal deficit important policy input'

RBI reviews general macro situation, Kelkar & Nair panel's recommendations

The Reserve Bank of India (RBI) on Thursday said the government’s final data on the fiscal deficit for this financial year would be important in deciding its monetary policy.

Speaking to the media after the central bank’s board meeting here, RBI Governor D Subbarao said, “In the next few weeks, we have to determine what the final outcome might be. That would determine our monetary policy calculation.”

He added it was not yet clear what the fiscal deficit for this financial year would be. The Budget estimate of the fiscal deficit for this financial year was 5.1 per cent of the gross domestic product. Last week, at a half-yearly meeting aimed at finalising the borrowing calendar, it was indicated the fiscal deficit this year would be consistent with the Budget estimate. A final fiscal deficit number would, however, be brought out in the next few weeks.

When asked how the government should tackle the fiscal deficit, Subbarao said it had had already tried hard to address the issue. “What else the government has to do is a question of detail. But as far as RBI is concerned, the final number will be important. How they get it will be important for the country, for the economy, and for all of us. But I am saying in the short term, for monetary policy calculations, the number is important,” he said.

The monetary policy review, scheduled for the end of this month, would consider inflation and also provide a fiscal outlook. Efforts would be made to rein in inflation, without compromising on growth, Subbarao said, adding the growth drivers for the long-term economic situation were intact.

The board meeting held on Thursday also discussed the Kelkar panel recommendations in this regard, he added. “We also reviewed the global and domestic macroeconomic situations. In that connection, we discussed the Kelkar committee recommendations to the central government. That is relevant and important to RBI because what the fiscal deficit is going to be is an important variable in our monetary policy calculation,” he said. RBI has recommended cutting subsidies to address the fiscal deficit.

On Thursday’s meeting also discussed priority sector lending, the Nair committee recommendations and the vision document on the payment and settlement systems, Subbarao added.