The Indian government aims to bring down the fiscal deficit to Rs5.13 lakh crore or 5.1% of GDP in the current fiscal
New York: Highlighting the need for fiscal consolidation, Reserve Bank of India (RBI) Governor D Subbarao has said the central bank's tight monetary stance is directed towards offsetting fiscal slackness, reports PTI.
"RBI (is) having to take on a tight monetary stance to offset fiscal slackness," he said Tuesday while delivering a lecture at Cornell University on 'India in a Globalizing World: Some Policy Dilemmas'.
RBI raised policy rate 13 times between March 2010 and October 2011 in its bid to bring down inflation. It, thus, increased interest rate by 3.75% during that period.
In its last policy review in July, RBI chose to keep interest rate unchanged citing inflationary pressure.
In 2011-12, the fiscal deficit had ballooned to 5.76% of GDP on account of high fuel subsidy outgo.
The government aims to bring down the fiscal deficit- the gap between expenditure and revenue collection - to Rs5.13 lakh crore or 5.1% of GDP in the current fiscal.
Terming fiscal deficit as structural issue, Subbarao said "we have fiscal deficit in the face of current budget (revenue) deficit, implying borrowing is being used for consumption expenditure".
"Political economy - including federalism - challenges in reducing fiscal deficit," the RBI governor said.
Analysts believe that fiscal deficit could breach 6% mark in 2012-13 in view of rising oil, food and fertiliser subsidy bills and lower revenue realisation due to concerns of economic slowdown.
For the April-June period, the fiscal deficit rose to Rs1.9 lakh crore, or 37.1% of the 2012-13 target.
Subbarao said fiscal deficit is bad for a number of reasons as it also exacerbates inflation. "Even as investment has moderated, consumption remained strong benefitting from fiscal expansion. Fiscal deficit is adding to consumption demand," he said.
The move would facilitate business relationship between non-residents and local businessmen
Mumbai: The Reserve Bank of India has allowed non-residents to provide guarantee for non-fund based activities to residents, a move that would facilitate business relationship between non-residents and local businessmen, reports PTI.
Earlier, this facility of providing guarantee by non-residents was available for rupee loans only.
"...it has been decided to extend the facility of non-resident guarantee under the general permission for non-fund based facilities (such as Letters of Credit/guarantees/Letter of Undertaking (LoU) /Letter of Comfort (LoC) ) entered into between two persons resident in India," RBI said in a notification.
It said there would be no change in method of discharge of liability by the non-resident guarantor under the guarantee and the subsequent repayment of the liability by the principal debtor.
The notification further said that a new reporting format would be introduced to capture such guarantees issued and invoked. The banks would be required to furnish the details of such transactions by 10th day of the following month.
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