Reserve Bank of India Governor Urjit Patel urged the government on Wednesday to show some progress in cutting high Central and State government borrowing, just weeks before Prime Minister Narendra Modi’s administration is due to unveil its annual budget.

Patel, in a speech at the Vibrant Gujarat summit, said the government debt to gross domestic product ratio was also taking its toll on the country’s sovereign ratings.

India’s total fiscal deficit, combining the levels of the Central and State governments, was among the highest in G20 countries, Patel said, citing International Monetary Fund data. India’s current fiscal deficit is targeted at 6.4 per cent of GDP at the combined State and Central level for the year ending March.

“We have to take cognisance of these comparisons and facts as we go forward to make progress. Specifically this will help us to better manage risks for ourselves and thereby mitigate financial volatility,” Patel said.

The RBI Governor also said the government needed to be mindful of subsidising credit or providing credit guarantees, saying such schemes can add to government debt.

Modi unveiled a series of incentives to provide cheaper credit to the poor, farmers, women and small businesses at a speech on December 31.

“While some government guarantees and limited subventions can help, steep interest rate subventions and large credit guarantees also impede optimal allocation of financial resources and increases moral hazard,” Patel said.

Related Topics