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Journalism of Courage
The Reserve Bank of India (RBI),which was insisting on a credible fiscal correction by the government seems to be happy with the way Union Budget is going to the tackle the fiscal woes. The central bank on Thursday said the Budget would go a long way in lowering the fiscal risk in the economy and laying the foundation for an effective rebalancing of government finances.
The fiscal targets achieved in 2012-13 (5.2 per cent of GDP) and that laid down for 2013-14 (projected at 4.8 per cent) will lay the foundation for a sustainable rebalancing of government finances. This would impart confidence in the economy and support investments,both domestic and foreign, RBI Deputy Governor Urjit Patel told reporters. The RBI will review the monetary policy on March 19.
The Budget sets the stage for lowering the twin deficits (fiscal deficit and current account deficit),moderating the drafts of government on household financial savings and help create the fiscal space to augment private investment, Patel said. The Budget has taken significant steps to bring down fiscal deficit and challenges arising from subsidies are being met by the government,he said.
The Budget has taken significant steps forward for taking the overall fiscal deficit down and the challenge of subsidies is being met… this is a medium-term programme and we have both 2012-13 and 2013-14 numbers,which indicate the government expenditure and borrowings are being brought down and I think,overall thats a good thing, he said.
Even as the government unveiled a higher-than-expected gross borrowing number that sent bank shares tumbling on Dalal Street,he said it would be able to manage the governments borrowing programme for the next fiscal year. The Finance Ministers borrowing assumptions are reasonable,Patel said.
Shares of public sector banks fell on concerns about liquidity in the banking system after the government set its target for gross market borrowing at Rs 6,29,000 crore in 2013-14,above estimates of less than Rs 6,00,000 crore. Analysts said this is a negative point for banks including State Bank of India and Punjab National Bank as it is likely to trigger worries over liquidity in the system. SBI shares fell 5.80 per cent on the BSE after the presentation of the Budget. ICICI Bank plunged 3.86 per cent,HDFC Bank 2.67 per cent,PNB 5.79 per cent and Bank of Baroda 4.48 per cent. The BSE Bankex declined by 3.59 per cent.
The higher government borrowings will have a negative impact for the private sector. This is because government borrowings next fiscal would crowd out resources available for the private sector,more than it did in 2012-13. The higher borrowing will also put pressure on inflation, said an analyst. The benchmark 10-year bond yield ended 7 basis points (bps) higher from Wednesdays close of 7.87 per cent,the single biggest daily rise in yield since July 31,2012 when the central bank cut the cash reserve ratio.
