NEW DELHI: Reserve Bank of India (RBI) Governor Shaktikanta Das on Saturday ruled out a possible spike in inflation arising from the recent Union Budget proposals, noting that the government is maintaining fiscal prudence with regard to fiscal deficit numbers. “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, addressing the press after the RBI’s board meeting in Delhi. Faced with a revenue shortage amidst a slowing economy and muted tax collections, the government had utilised the ‘escape clause’ under the Fiscal Responsibility and Budget Management (FRBM) Act that allows the Centre to breach its fiscal deficit target by 0.5 percentage points at times of severe stress.
The government has 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. “A good part of the government borrowing is also budgeted to come from small savings. Therefore, I don’t see much of an inflationary impact,” he noted, adding falling crude prices will “definitely have a positive impact on inflation”. “The reason for spike in inflation is because of food inflation, mostly milk, fish, and various protein related items.
Core inflation has slightly edged up because of revision of telecom tariffs,” he noted. Retail inflation had soared to a more than five-year high of 7.59 per cent in January, surpassing the RBI’s target range of 2-6 per cent. Das also noted that credit offtake is picking up pace, which indicates green shoots in the economy. “Credit flow is slowly and steadily reviving,” he said, “thanks to the various measures announced in the budget and in the run up to the budget by the government and the RBI…”