High fiscal deficit not to cause BoP crisis: RBI

“We have a bad fiscal situation. Our responsibility is to see in what way we could check it. It is a difficult task,” he said, adding however, India’s high fiscal deficit has not spilled into external indebtedness or high inflationary situation.

According to the RBI governor, at present domestic savings are being used to finance the government expenditure. However, the rate of returns on the savings are not good as the quality of public services being offered are poor. Talking to reporters on the sideline of the function, Jalan said that the RBI has not set any target value for the rupee. “We do not have any target value for rupee. The market is quite,” Jalan said.

Jalan also said there was no direct relationship between the crude oil prices and the interest rates. However, the he added that the real interest rates continue to be high and stressed the need for moving on to a flexible interest rate regime that would give the option of a fixed or a variable interest rate structure for depositors.

Jalan was critical of scrutiny of funds budgeted since it led to considerable time and cost overruns, and suggested simplification of rules.On the NPAs of the banks, which had mounted to over Rs 56,000 crore, Jalan said although it continued to pose problems, “it was less sore” because of debt recovery and other exercise carried out by the banks.