Fiscal discipline must to promote growth: RBI Governor Sanjay Malhotra

RBI Governor Sanjay Malhotra calls on states to maintain fiscal discipline, improve expenditure quality and borrow responsibly while coordinating closely with the central bank

Reserve Bank of India Governor Sanjay Malhotra emphasised the need to maintain fiscal discipline while speaking at a conference of state finance secretaries on Thursday.

 

“The Governor emphasised the importance of fiscal discipline for promoting economic growth and prosperity,” the RBI said in a statement.

 

He also stressed the need for states to focus on improving the quality of expenditure and ensuring prudence in off-budget borrowings.

 

The theme of the conference was Journey towards Economic Prosperity through the Path of Fiscal Consolidation. It was attended by the secretary, Department of Expenditure, Ministry of Finance; finance secretaries of 28 states and two Union Territories; and other officials from the Ministry of Finance, the Controller General of Accounts and the Comptroller and Auditor General of India. 

 

 

Cash management and market borrowings by the states and issues relating to fiscal consolidation were also discussed at the conference.

 

In 2023-24, states contained their gross fiscal deficit (GFD) at 2.91 per cent of gross domestic product (GDP), within the Fiscal Responsibility Legislation (FRL) limit of 3 per cent, according to the central bank’s report on state finances.

 

The report showed expenditure quality improved further, with capital outlay rising to 2.6 per cent of GDP in 2023-24 from 2.2 per cent in 2022-23. In 2024-25, states are expected to maintain fiscal discipline with the GFD budgeted at 3.2 per cent of GDP, while continuing to improve expenditure quality.

 

In the first half of the current financial year, states have borrowed more than what was budgeted, issuing longer-tenure papers.

 

Malhotra also underscored the importance of active coordination between states and the RBI for effective implementation of initiatives in areas such as currency management, financial inclusion and the Unified Lending Interface, the statement said.