India needs to take a cautious approach in deciding on any deviation from the fiscal consolidation path to push growth, RBI Governor Raghuram Rajan has said.
Any deviation from fiscal consolidation goals could push up government bond yields, he warned while delivering the CD Deshmukh lecture, organised by NCAER, here on Friday.
“More spending could hurt debt dynamics,” he said. Rajan highlighted that the Centre understands the importance of bond market confidence. He, however, lamented there was little appreciation of this among the “common man”.
Rajan's remarks on the need for caution in deviating from fiscal consolidation goals assume significance as they come just weeks before the Modi-led government presents yet another full-fledged Budget.
A raging debate is on in the country as to whether the Centre should move away from earlier-set fiscal goals for a year in order to push economic growth.
While India Inc is for deviation, the bureaucracy is divided on this approach.
Rajan also said the RBI will not move away from existing inflation agreement with the government. He hoped the Centre would soon amend the Reserve Bank of India Act to enable the constitution of a monetary policy committee. He said he was looking forward to the enactment of the Bankruptcy Code. “This will help develop a deep corporate bond market in India.”
Universal bank licence The RBI will soon come out with mechanism for providing ‘on-tap’ licensing for universal banks, Rajan said. This would mean the RBI window for granting banking permits would be open through the year.