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RBI ruled out any step to bail out government from fiscal deficit

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Weak governance in PSBs resulting in high NPAs: Shaktikanta DasMumbai, Feb 6 (IANS) RBI Governor Shaktikanta Das on Thursday ruled out any step by RBI to bail out the government from fiscal deficit expansion by printing more currency or monetize the deficit.

“There is no plan to monetise the government”s fiscal deficit,” Das said during the post-policy conference.

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The government has already crossed the fiscal deficit at 132 per cent of the estimate as of December-end and in the Budget, Finance Minister Nirmala Sitharaman announced the use of ”escape” clause in the FRBM Act to expand the fiscal deficit to 3.8% in current fiscal (from 3 per cent announced in July Budget) and to 3.5% in the next fiscal (up from 3.3 per cent projected in the previous budget).

This is the third consecutive year that the government has revised its fiscal deficit target. For FY21, government will borrow a record Rs 8.1 trillion . But for the current fiscal, the Finance Ministry will not raise any extra borrowing. Instead, the government has said it will raise Rs 2.4 trillion through small savings certificates for the current fiscal, against Rs 1.3 trillion estimated in the July Budget.

Since the small savings target for the current fiscal year is very ambitious which, if not met, raises threat of extra borrowings, therefore RBI monetising government on this was anticipated, but RBI has now ruled it out.

Small savings mobilisation till December has been only Rs 1.21 trillion, according to data from the Controller General of Accounts. The government is expecting that in the remaining three months, it will be able to raise the balance Rs 1.19 trillion from small savings which is an impossible task, according to experts.

The government has utilised “escape clause” under the Fiscal Responsibility and Budget Management (FRBM) Act which provides it a 50 bps leeway for relaxation of fiscal deficit roadmap during times of stress.

Accordingly, it has budgeted a net borrowing Rs 5.45 lakh crore from the market in FY21.

The central bank decided to keep the benchmark lending rates or the repo rates unchanged at 5.15%. The reverse repo rate remains unchanged at 4.90%

A statement issued by the bank said, “RBI will continue with its accommodative stance as long as it takes.” It further stated that the economy continues to be weak and the output gap remains negative as it announced its Monetary Policy Statement on Thursday.

–IANS

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