Hyderabad: The Reserve Bank of India (RBI) has said its ability to conduct the monetary policy freely has again come under threat due to the influence of the government's fiscal policies, reports PTI.
"Like in most countries, in India too, fiscal stimulus was part of the crisis response and monetary policy had to acquiesce in elevated government borrowing.
"Going forward, the challenge for the government is to continue the fiscal consolidation and for the Reserve Bank to regain the space to conduct monetary policy free of fiscal compulsions," RBI governor D Subbarao said in the D Deshmukh lecture here on Thursday.
He said world over, central banks' monetary space has come under the dominance of fiscal policies of the governments and India followed the global trend.
"It will be less than honest not to acknowledge that the autonomy of monetary policy from fiscal compulsions is once again under threat, and resolving that threat requires credible efforts by both governments and central banks," Mr Subbarao said.
As the Centre cut duties and stepped up expenditure as part of stimulus measures to boost the slowing economy since the late 2008 as a result of the global financial crisis, its outlay overshot receipts by a huge amount, leading to widening of fiscal deficit, which crossed 6.5% of the gross domestic product (GDP) during 2009-10.
As the government partially rolled back stimulus in the budget for the current financial year, its fiscal deficit is pegged to come down to 5.5% of GDP.
To finance its increased expenditure, the government has to resort to huge market borrowings, pegged at over Rs4.5 lakh crore this fiscal.
The RBI has to manage the government borrowings in such a way that it does not lead to resource shortage for private players.
As such, the RBI may not be able to increase its rates to desired level even if it wants to contain inflation since that would push cost of borrowing for private players.
In fact, an RBI official had recently said that more aggressive tightening of monetary policy is required to tame inflation. The central bank has hiked short term borrowing (reverse repo) by 50 basis points and lending (repo) by 25 basis points to control inflation, which has been in double digits for five consecutive months.
The government, meanwhile, earned over Rs1 lakh crore from auction of spectrum, which many thought would be used for reducing fiscal deficit further. However, the government recently sought Parliament nod for additional expenditure of Rs54,588.63 crore and said its additional receipts will not lead fiscal deficit to widen.
In his reply to the debate on inflation in the Rajya Sabha, finance minister Pranab Mukherjee also said RBI is framing its monetary stance in coherence with the Centre's fiscal policies.
ICICI Prudential MF launches ICICI Prudential FMP - Series 53 - 3 Years Plan A
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IDFC MF floats IDFC Fixed Maturity Plan - Yearly Series 32
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SBI MF launches SBI Debt Fund Series - 180 Days Fund - 11
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DSP BlackRock MF introduces dividend option under DSP BlackRock Micro Cap Fund
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CRISIL launches 'Star Ratings' for the realty sector
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Bank of Baroda to increase BPLR by 20 bps
Bank of Baroda has decided to increase its benchmark prime lending rate (BPLR) by 50 basis points (bps) from existing 12% per annum to 12.5% per annum with effect from 6 August 2010.
New Delhi: The government today admitted that certain banks were not following guidelines on opening no-frill, zero balance accounts in rural areas and said efforts were being made to make banking facilities available to remotest part of the country through various means, reports PTI.
Finance minister Pranab Mukherjee said in Lok Sabha that certain banks might not be observing guidelines of the Reserve Bank of India (RBI) in opening no-frill, zero balance accounts in rural areas.
Mr Mukherjee said he has asked banks to listen to the political leadership and the state governments in addressing the grievances of the people.
He was answering a supplementary question by Arjun Singh Meghwal (BJP) on complaints that banks were denying zero balance facility to people in rural areas.
His views were supported by several members across political parties.
He said the chief ministers have been requested to take meetings of state level bankers. Similarly, officers have been directed to meet bank officials at the district level so that the role of the middleman is eliminated.
Stressing the need for a "vigilant mechanism", he said branch officers were being made accountable.
Replying to another question, minister of state for finance Namo Narain Meena ruled out special incentives to bank officials for deployment in rural areas. "It is part of their normal work," he said.