oppn parties RBI Issues Timely Warning on Fiscal Consolidation

News Snippets

  • Last date for filing Income Tax returns by salaried employees extended to August 31
  • Supreme Court extends Assam NRC deadline to August 31
  • Prohibitory orders clamped in Bengaluru. Wine shops, pubs, bars and restaurants ordered closed for the next 48 hours
  • Congress still trying to avoid the floor test in Karnataka
  • 75 percent of the jobs in all private sector firms to be reserved for locals in Andhra Pradesh
  • Supreme Court will hear the petition of two independent MLAs seeking a direction to the Karnataka Speaker to hold the trust vote "forthwith"
  • Congress-JD(S) and a partisan Speaker push the Karnataka trust vote to Tuesday
  • Panel submits draft legislation to the government to criminalize mining, investing and trading of crypto-currencies
  • Government panel suggest a ban on crypto-currencies
  • Lok Sabha passes RTI Act amendment bill amid protests by the Opposition
  • Jasprit Bumrah rested for ODIs and T20s
  • Dinesh Kartik ignored across fromats
  • Rohit Sharma included in Test team too while Wriddhiman Saha makes a comeback after injury
  • Virat Kohli retained as captain across formats for the West Indies tour
  • MS Dhoni decides to take a two-month break, will skip West Indies tour but will not retire
Congress-JD(S) government loses trust vote in Karnataka. BJP might stake claim to form the government
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RBI Issues Timely Warning on Fiscal Consolidation

By Sunil Garodia

About the Author

Sunil Garodia Editor-in-Chief of indiacommentary.com. Current Affairs analyst and political commentator. Writes for a number of publications.
Although it was expected that the MPC of the RBI would hold rates, what was not expected was the veiled warning the apex bank chose to give to the government. The RBI was categorical in saying that if fiscal consolidation is not adhered to and even made stronger; the country is in for tough times ahead. This is a very sane and timely warning.

The government was committed to fiscal deficit of 3.2% this year. It has now said that this will be closer to 3.5%. Even this figure might increase. This is bad fiscal management. As it is, India has frequently postponed what it had set out to do in the FRBM Act. The fiscal deficit was to be pruned to 3% by 2008. Even ten years later, there is no hope of achieving that. This is mainly due to the fact that revenue deficit keeps bloating, although the NDA government has kept it in check.

In order to bring down the fiscal deficit, the government will have to run a tight ship. This does not mean it will have to lay off people or otherwise cut down on necessary expenditure. But at a conservative estimate, there is a leakage of 5 to 10 percent on account of wasteful expenditure that can be controlled. This is where the focus should be. The NDA government is working (the recent decision to make the Railway Board less top heavy was one of them) on that and the results will take time in coming. But a lot more needs to be done in this area.

The RBI is mainly worried about inflation. It has already revised the target from 4% to 5%. A one percent jump is massive, especially since there is greater jump in food inflation, something that hits citizens on a daily basis. Interest rate reduction has been put on the back burner in face of rising inflation. The government should heed the RBI warning and must not deviate from fiscal targets.