Centre's fiscal situation comfortable: DEA Secretary Subhash Garg

The RBI said one of the factors affecting headline retail inflation was the Centre's decision to fix MSP

The fiscal situation is comfortable and its management is on track, said Economic Affairs Secretary Subhash Garg on Wednesday, a day after the government presented an encouraging fiscal deficit data for the April-June quarter.

“Revenue has been more or less buoyant this year (the second year of the goods and services tax, or GST),” he added, reacting to the decision of the Reserve Bank of India’s (RBI’s) Monetary Policy Committee to increase benchmark interest rates by 25 basis points for the second time in a row.

The Centre’s fiscal deficit for the first quarter of FY19 was Rs 4.29 trillion, or 68.7 per cent of the Budget Estimate of Rs 6.24 trillion, official data released on Tuesday showed. This compares favourably to the fiscal deficit for the same period last year, thanks primarily to lower administrative expenditure and higher non-tax revenue.

Garg said, “The RBI policy talks about growth remaining unchanged. It also talks of inflation, essentially saying that the first quarter inflation has been lower than the last projection. On inflation, the RBI’s assessment is almost unchanged or slightly better. In the light of these factors, growth seems to be unchanged. And, the third factor (for hiking the repo rate) maybe the narrowing of the output gap.”

He added that the markets had factored in the possibility of a repo rate hike. “The market’s reaction has not been turbulent. The rupee appreciated somewhat as well,” he said.

The RBI said one of the factors affecting headline retail inflation was the Centre’s decision to fix minimum support prices (MSPs) of all kharif crops for FY19 at 150 per cent of their cost of production.

Garg, however, said it was a negligible factor. “The effect of MSP hike will play out gradually over a period of time,” he added.