Mumbai: Reserve Bank Deputy Governor Subir Gokarn on Monday said the fiscal deficit is likely to be around 5.5 per cent of the GDP this financial year, which is creating stress on the inflation front. The Finance Ministry had recently revised its fiscal deficit target for the fiscal to 5.3 per cent for 2012-13, a tad above the budget estimate of 5.1 per cent.
"Fiscal deficit is somewhere in the region of 5.5 per cent or so. The government estimates that it will bring it to 5.3 per cent, but quite some distance from the 2.5 per cent-benchmark achieved in 2008," Gokarn told a meeting of the Indo-Swiss Chamber of Commerce here this late evening. "That's creating some stresses from the inflationary point as well as from the point of resources going into finance government consumption," he added.
On the inflation front, Gokarn, in-charge of monetary policy and inflation management at the central bank, said high inflation is due to the rising oil and food prices apart from the fiscal gap. The headline inflation rose to 7.45 per cent in October, which though was a little lower than 7.81 per cent in the previous reading.
Citing high inflation, RBI had left the policy rates unchanged at 8 per cent in its busy season monetary policy on October 30, but had dropped enough hints that it could lower lending rates in the fourth quarter on expectation that the price index will start cooling off. However, it had also revised upwards by 0.50 per cent its fiscal end inflation target to 7.5 per cent.
On the falling exports and rising imports, which have pushed up the current account deficit to a record USD 21 billion in October, Gokarn said, the global environment has been less conducive for business growth for some time now due to the problems in the leading economies. "When we look at the policy agenda for the domestic economy, we are unquestionably going to be dealing with the global environment which is going to remain much less hospitable than it was in the pre-crisis years and it may go on for couple of years," he said.
Weak global environment has hit India's exports, which fell 9.7 per cent from a year earlier to USD 22.3 billion in the second quarter, while imports dropped 5.08 per cent to USD 37.9 billion. The current account deficit fell to 3.9 per cent in the quarter ended June from 4.5 per cent in the March quarter, but the decline was largely due to squeeze in imports with merchandise imports falling 3.6 per cent against a growth of 41 per cent last year.
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