Ahead of the Union Budget 2017-18, Reserve Bank of India Governor Urjit Patel has stressed that keeping inflation rate low and stable on durable basis is ‘crucial requirement’ for a meaningful interest rate regime whereby decisions by savers and investors help to achieve maximal allocative efficiency in an economy whose investment rate has to increase for better growth outcomes.
Stating that RBI has already notified inflation target of 4 percent, Urjit Patel said the effort should be to achieve the objective of keeping prices under check on a durable basis, given the progress already made. He also noted that the RBI would continue to press ahead for a more fluid, smooth transmission of monetary policy and also enhance the linkage between changes in policy rates and other rates, including administered ones.
On the issue of fiscal deficit, Reserve Bank of India Governor said that though the central government has embarked on a fiscal consolidation path since 2013, the total borrowing by the centre and states combined is amongst the highest within G-20 countries. He also said that lower fiscal deficit will also help in better management of risk and curb financial volatility which becomes more important in view of adverse external environment.
On recapitalisation of public sector banks, Patel said that a well capitalised domestic banking system enhances the comfort of the various stakeholders to conduct business in the offshore International Financial Services Centre (IFSC) as well. GIFT has been set up by the Gujarat government as India's first IFSC that brings together world class infrastructure, connectivity, people and technology on a single platform for businesses across the world.