Budget proposals will not have inflationary impact: RBI Governor Shaktikanta Das

The rate of price rise at the retail level may have hit its highest in the past six years of Modi regime, but it does not unsettle the Reserve Bank of India beyond a point.

To a question on whether the union budget proposals could add to already rising consumer price inflation,

Talking to reporters in here, RBI Governor Shaktikanta Das said inflation had only slightly edged up due to an increase in telecom prices.

“The main 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 said, addressing the press after Finance Minister Nirmala Sitharaman apprised the RBI board of her budget proposals..

Retail inflation spiked to 7.59% in January, its highest since May 2014, trigerred by a double digit jump in food prices. Core inflation, which strips off the volatile food and fuel, became stickier too.

The governor also saw the declining crude prices to have a positive impact on inflation. However, a whopping rise of nearly Rs 150 per cylinder in cooking gas prices last week is threatening to stoke inflation further, particularly in rural areas.

Added to that, the China-related supply chain shortages in the manufacturing sector, could stoke core inflation, which is already above the central bank's comfort level of 4%.

The Governor was also of the view that the recent budget proposals would not have any inflationary impact.

"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.

The 'escape clause' under the Fiscal Responsibility and Budget Management (FRBM) Act allows the Centre to breach its fiscal deficit target by 0.5 percentage points at times of severe stress in the economy.

The union budget had raised the fiscal deficit target to 3.8% of the GDP for 2019-20, from an estimated 3.3%.

Rating agency Fitch has estimated that among other things, the vehicle production in India could contract 8.3% this year as auto industry stares at supply shortage from China.