oppn parties RBI Issues Timely Warning on Fiscal Consolidation

News Snippets

  • All 6 Bahujan Samaj Party MLAs merge with the Congress in Rajasthan
  • Bengal CM Mamata Banerjee to meet PM Modi on Wednesday, state issues on the agenda
  • Pakistan to open Kartarpur corridor on Nov 9
  • Rajeev Kumar, ex-police commissioner of Kolkata and wanted for questioning in the Sarada scam does not appear before the CBI despite the state administration requesting him to do so
  • Supreme Court asks the Centre to restore normalcy in J&K but keeping national interest in mind
  • As Trump accepts the invitation to attend a programme in Houston with PM Modi, India rushes to settle trade issues with US
  • After drone attack on Aramco's Suadi Arabia facility, oil prices jump 19% in intra-day trading causing worries for India
  • Imran Khan raises nuclear war bogey again, says if Pakistan loses a conventional war, it might fight till the end with its nuclear arsenal
  • Searching for Rajeev Kumar, ex-CP, Kolkata Police, the CBI approaches state DGP to know about his whereabouts
  • Ferry overturns in the river Godavari in Andhra. 46 feared dead
  • Supreme Court to hear pleas on Jammu & Kashmir today
  • Ghulam Nabi Azad moves Supreme Court for ordering the government to allow him to visit his family in J&K
  • GST Council meeting to focus on leakages and evasions, expected to tighten processes, especially regarding input tax credit
  • Finance minister, citing figures for July 2019, says that industrial production and fixed investment is showing signs of revival
  • Amit Shah's comment on Hindi as the unifying language draws the ire of MK Stalin and Siddaramaiah. Stalin says the country is India not Hindia
Sunni Wakf Board and Nirvani Akhara write to the Supreme Court for a negotiated settlement to the Ayodhya dispute
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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.