Amid the increased prospect of a lower interest rate regime and hopes of the Reserve Bank of India (RBI) cutting rates in its monetary policy review on April 5, Jayant Sinha, Minister of State for Finance, putting the ball in RBI’s court has said that what we have done in the Budget is to create space for the Reserve Bank to cut rates.
Sinha said that at this time, if you look at the fiscal and monetary side, you will find that the fiscal side is much tighter. There is a lot more monetary space as inflation pressures are subdued. Also, there is weak aggregate global demand and, lastly, central banks around the world are following unconventional monetary policies.
Talking about the Fiscal Responsibility and Budget Management (FRBM) Act and fiscal targets going forward, he said that FRBM is a very important aspect of India’s fiscal management by setting benchmarks. The benchmark is that the fiscal deficit at both the Centre and the States’ level should be at three per cent. FRBM was put in place in 2003 and in 2004, the UPA government came and the first thing they did was to press pause on the FRBM. Thereafter, every year the FRBM was revised and the three per cent target was never achieved. So, the FRBM targets were observed more in breach than observance. Our thinking on fiscal target is to be much more dynamic and flexible, to be counter-cyclical, if required.