Reserve Bank Governor Shaktikanta Das on Saturday said momentum is gathering pace on credit growth and expressed hope that transmission of rate cuts will improve further in the coming days.
He said the budget proposals will not have much inflationary impact as the government has by and large remained within the fiscal deficit roadmap set under the FRBM Act.
The Union Budget earlier this month raised the fiscal deficit target to 3.8 per cent of the GDP for 2019-20, from the 3.3 per cent pegged earlier, due to revenue shortage.
“The direct inflationary impact of any budget is the 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 is very much within the parameters set as per FRBM committee recommendations,” Das said.
He was talking to reporters after the customary address of the Finance Minister to the central board of RBI post-budget.
The government has utilised ‘escape clause’ under the Fiscal Responsibility and Budget Management (FRBM) Act, which allows the Centre to breach its fiscal deficit target by 0.5 percentage points at times of severe stress in the economy, including periods of structural change and when growth falls sharply.
“The good part of government borrowing is also budgeted to come from small savings. Therefore, I don’t see much of an inflationary impact. Declining crude prices has definitely a positive impact on inflation…The main reason for the 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.
Retail inflation based on consumer price index (CPI) soared to a near six-year high of 7.59 per cent in January, surpassing the Reserve Bank of India’s comfort range primarily on account of rising vegetable and food prices.
This was the highest rate of inflation since May 2014, when it came in at 8.33 per cent.
Similarly, wholesale prices-based inflation accelerated to a 10-month high of 3.10 per cent in January mainly due to costlier food articles, particularly onion and potato.
On inclusion of core inflation in the monetary policy framework, Das said, “Internally we are reviewing, we are analysing how MPC framework has worked over the last 3.5 years. There is already an internal review process going on. At the appropriate time if required we will have dialogue and discussion with the government. At the moment, it is under review within the RBI.”
Asked if the board considered payment of interim dividend to the government, the governor was non-committal and said if any decision is taken, it will be made public.
“For greater transparency, we are uploading minutes of RBI’s central board meeting. If any decision is taken, it will be uploaded on the website,” he said.
On moderating credit growth, Das said there are signs of an uptick and the momentum is gathering pace.
The flow to the commercial sector is seen rising from October till now and credit flow from all sources — banks, domestic market and external commercial borrowing — has improved to Rs 7.5 lakh crore, he said, adding nearly Rs 6 lakh crore flow has happened between October and January to the commercial sector.
“Within that, if you look at bank credit to the commercial sector, it was actually a negative growth at the end of September by about Rs 1.3 lakh crore or so. Now it is plus Rs 2.7 lakh crores, the latest number we have at the end of January. So this is within the total number I mentioned,” he said.
The momentum is gathering pace, he said, adding “credit flow is slowly and steadily reviving and thanks to the various measures announced in the budget and in the run-up to the budget by the government and the reserves, which the RBI has announced, we do hope and we do expect the credit flow to improve in the coming months.”
Replying to a question on the alignment of RBI’s accounting year with the financial year, Das said, “It is under consideration, you’ll hear very shortly on that.”
RBI follows the July-June accounting year.