Fiscal Slippage On Cards, Says Reddy

Reserve Bank of India deputy governor Y V Reddy today said there was likely to be fiscal slippage against budgetary estimates because the government has exhausted its borrowing. If anything, there could be some more borrowing over and above the budgetary figure and this would show up in the next budget.

With household spending having reached near-zero growth, the government will have to be cautious in its budget this year. Moreover, there will be pressure on state finances, he said at an interface with company heads at the Indian Chamber of Commerce (ICC).

On capital account convertibility, the deputy governor admitted there was room for RBI to open up more on the outflow front in capital account convertibility. Reddy said the government needs to be very careful and a whole lot of prudential norms need to be laid down.

Referring to examples from other countries, Reddy said none of the developed nations have anything called full capital account convertibility. There were different norms for different set of organisations.

Reddy also stressed on the necessity to recognise the large informal sector as well as the limited reach of financial markets relative to the growing sectors, especially services. The overhang of institutional structure that tended to undermine the effectiveness of monetary policy in India also had to be corrected.