RBI cautions govt on fiscal consolidation

The RBI today cautioned government that it should not be complacent about fiscal consolidation just because it got one-off high realisation from the sale of spectrum for high speed mobile and broadband services.

"It is, however, important to ensure that this one-off increase (in realisations through spectrum sale) does not slacken the much needed efforts towards fiscal consolidation," the RBI said in its monetary review.

The central bank said the spectrum auctions in the telecom segment has fetched the government Rs 1,06,000 crore, as against a budgeted amount of Rs 35,000 crore, resulting in an increase in receipts by over one per cent of GDP.
    
The centre's fiscal deficit targets were all disturbed after the government provided stimulus to the economy since late 2008 to fight the impact of global financial crisis. Against the target of 3 per cent fiscal deficit during 2008-09, as mandated by a legislation, it more than doubled to over six per cent.
    
Fiscal deficit further widened to over 6.5 per cent during 2009-10. However, this financial year the government resorted to fiscal consolidation by partially withdrawing stimulus.
    
The government estimates fiscal deficit at 5.5 per cent this financial year. If other things remain same, the higher receipts from spectrum sale itself will help the government reduce fiscal deficit by one percentage point.
    
The fiscal deficit target for the current financial year is an improvement to the roadmap suggested by the 13th Finance Commission.
    
As per the roadmap, fiscal deficit is now targeted to come down to 5.7 per cent in 2010-11, 4.8 per cent in 2011-12, 4.2 per cent in 2012-13 and 3 per cent the following year.
    
Yesterday, Moody's upgraded India's sovereign currency rating by a notch on the government efforts for fiscal consolidation.
     
The RBI is precisely cautioning the government to continue carrying out efforts to reduce fiscal deficit, despite greater realisations from spectrum sale.