The Government’s initiative to cut the twin deficits — fiscal and current account — will go a long way in lowering the fiscal risks in the Indian economy, said a top central bank official.
Fiscal target
“The fiscal target achieved in FY 2012-13 and that laid down for FY 2013-14 will lay the foundation for a sustainable rebalancing of government finances.
“This would impart confidence in the economy and support domestic and foreign investments,” Urjit Patel, Deputy Governor, said in his first press conference after assuming office.
The Reserve Bank of India also welcomed the Government’s decision to introduce inflation-indexed bonds (IIBs) to wean investors away from gold.
Terming the scheme as “innovative,” Patel said, “IIBs will increase the choice for savers and is particularly attractive for risk-averse investors who would be able to get assured real returns.”
Patel said, “IIBs would encourage household savings to shift away from gold that is largely un-productive for the economy.”
This will also help in addressing the current account deficit (CAD) risk to the economy as high gold imports in recent years has contributed significantly to its widening, he said.
Hurt by rising oil and gold imports, India’s CAD was at a record high of 5.4 per cent of gross domestic product in the second quarter of the current fiscal.