JOIN US“We have been saying that the more extended the fiscal position the more pressure it puts on demand and therefore more difficult it is to manage inflation...these measures give us some comfort,” he told reporters at an official briefing on budget.
The Budget proposed to bring down fiscal deficit to 4.6 per cent next fiscal from this year’s 5.1 per cent. The budget also proposed to bring down net market borrowing of the government by Rs 40,000 crore to Rs 3.43-lakh crore in fiscal year 2012.
The measures to tackle fiscal deficit would help as the monetary measures taken by the RBI tend to get nullified by the high fiscal deficit, he observed adding, “the more there is reigning-in, the more room there is for monetary policy to act.”
Liquidity would not be volatile next fiscal as there would be lesser government borrowing which coupled with no major cash outflow from the system, as had happened earlier this fiscal due to the spectrum auctions. Gokarn also called the government’s articulation about the change in food consumption patterns to fruits and protein- rich food as a step in the right direction, as such items have been fuelling food inflation.
Noting the budget’s proposal to allocate money to multiple programmes to augment livestock, protein supplements, coarse cereals and edible oils production, Gokarn said there is a comfort coming from the government’s recognition of structural food inflation drivers and the commodities from which it is coming in. That recognition is a great sense of comfort.
“Its a very important step towards our longer-term outlook on inflation trajectory on food inflation,” he said, but added that RBI view on inflation in the short-term does not change with this. “Our final outlook on inflation will be unveiled in the annual monetary policy review in May,” Gokarn said. The proposed increase in the limits for FII participation in infrastructure financing to US$20 billion provides a “reasonable compromise”, as concerns over volatility in the capital flows are addressed by the minimum five-year lock-in period.
However, on the second contentious issue about the widening current account deficit, Gokarn said those concerns remain unchanged due to the prevailing grim global geopolitical situation which is driving up oil prices. The CAD is pegged at 3.4 percent of the GDP for this as well as next fiscal.