Credit growth momentum picking up; Budget proposals not to stoke inflation, says Das

Amid concerns over economic slowdown, RBI chief Shaktikanta Das on Saturday said credit growth momentum is picking up and ruled out any possible spike in inflation due to Budget proposals as the government is maintaining "fiscal prudence".

After the first meeting of the RBI board post 2020-21 Budget presentation, Das also expressed hope that transmission of rate cuts would improve further.

The meeting, which was also addressed by Finance Minister Nirmala Sitharaman, discussed various Budget proposals.

"The direct inflationary impact of any budget is fiscal deficit number, when borrowing goes up, but the government has adhered to the principle of fiscal prudence.

"The 'escape clause' under FRBM Act, the deficit number in the current year as well as the next year are very much within the parameters set as per FRBM committee recommendations," Das said.

Facing revenue shortage, the government raised the fiscal deficit target to 3.8 per cent of the GDP for 2019-20 in the budget, from the 3.3 per cent pegged earlier.

The government has utilised 'escape clause' under the Fiscal Responsibility and Budget Management (FRBM) Act, which allows the Centre to breach its fiscal deficit target by 0.5 percentage points at times of severe stress in the economy.

Meanwhile, the finance minister said the government is monitoring farm credit given by banks in rural areas, adding that she expects to meet the increased target of Rs 15 lakh crore for the next fiscal.

"Credit limit has been expanded. I am sure it is based on local ground level requirement...we expect the demand to grow and credit requirements to also meet up with it. I am actually closely monitoring banks and their extension of credit facility particularly to rural areas. So I think we'll be able to meet that," Sitharaman said.

The farm credit target for the current fiscal has been set at Rs 13.5 lakh crore.

Speaking on the inflationary impact of the Budget proposals, Das said, "The good part of the government borrowing is also budgeted to come from small savings. Therefore, I don't see much of an inflationary impact."