As Finance Minister Arun Jaitley was lauded for treading a path of fiscal consolidation this Budget, a few officials at the Reserve Bank of India (RBI) are now redoing the math to establish fiscal prudence, reports Reuters.
As expectations soar for an immediate rate-cut in the RBI's monetary policy, three officials at the country's top bank are reportedly worried the Budget was not short on populism.
They apparently belive increased spending in the farm and social sectors in the 2016-17 financial year came along with a curb on capital expenditure, and therefore could make possible a firm cap on fiscal deficit at 3.5 percent of the gross domestic product (GDP).
This fiscal balance comes at the cost of certain assumptions too, reported Reuters quoting the officials. For example, the government's revenue expectation from asset sales appeared optimistic, given the nearly two-thirds shortfall in its target in 2015-16. And the outlay of $16.6 billion in salary and pension hike for government employees is not fully accounted, it said.
Such a mismatch in receipts and spending could pull down capital expenditure even more, slowing the growth potential of the country as a whole, it warned. "A slowing government capex could equally slow down the private investment, in turn putting more pressure on the RBI to act through its monetary policy," one of the officials was quoted s saying by Reuters.
Finance ministry official, however, said the impact of higher salaries on inflation would be marginal. The Minister of State for Finance Jayant Sinha, too, had said at an earlier event: "To not to provide that (macroeconomic stability) space to monetary policy by generally running a relatively tighter fiscal policy, we cannot expect monetary policy to loosen up."
While the views expressed were limited to three of the RBI officials, the report said it does give fresh insight into the bank's post-Budget thinking and highlight some issues the RBI is likely to focus on this year as it deliberates on future monetary policy.
RBI Governor Raghuram Rajan on his part has publicly stated the Budget, by sticking to a fiscal consolidation roadmap, while taking steps to boost supply-side bottlenecks and control subsidy spending, would help create a space for further rate cuts, said Reuters.
Summing up the overall ethos of the budget, the RBI officials concurred it was more credible than last year's, with realistic estimates on tax revenues, capital expenditure and supply-side measures to control food prices.