RBI concerned over postponement of fiscal deficit target

The RBI today flagged concerns over the government's decision to postpone fiscal consolidation programme by a year, saying this could create demand management problems in an accelerating economy.
In his budget speech on Saturday, Finance Minister Arun Jaitley opted for a fiscal deficit of 3.9 per cent in 2015-16 as against the earlier conceived target of 3.6 per cent to boost public spending. It now proposes to achieve 3 per cent fiscal deficit by 2017-18.
In his policy statement, RBI Governor Raghuram Rajan said there are many important and valuable structural reforms embedded in the Budget, which will help improve supply over the medium term.

"In the short run, however, the postponement of fiscal consolidation to the 3 per cent target by one year will add to aggregate demand.
"At a time of accelerating economic recovery, this is, prima facie, a source for concern from the standpoint of aggregate demand management, especially with large borrowings intended for public sector enterprises," Rajan said.
The government expects the GDP growth in the next fiscal to be at 8-8.5 per on back of economic reforms as against 7.4 per cent estimated in 2014-15.

Jaitley, however, has reiterated the government's commitment to stick to the fiscal deficit target of 4.1 per cent in the current fiscal.

In the April-January period of 2014-15, the fiscal deficit rose to Rs 5.68 lakh crore, breaching the budget estimate by 107 per cent.
Jaitley said this may call for harder measures by the government to meet the target of 4.1 per cent of the GDP for the full 2014-15 financial year.