Reserve Bank of India (RBI) Governor Dr Urjit Patel on Wednesday hinted at the possibility of fiscal slippage due to farm loan waiver, partial roll back of duty on fuel and reduction in the Goods and Services Tax (GST) rates on a number of commodities.
Addressing a press conference post the rollout of the bi-monthly Monetary Policy here, Patel said the RBI is committed to restricting headline inflation at four percent.
"MPC took note of pressures from food and fuel prices; said committed to keeping headline inflation at 4 percent on a durable basis. Farm loan waiver, partial roll back of duty on fuel, cut in GST rates on several items may result in fiscal slippage," he said.
Taking note of the upside pressure caused by the rise in food and fuel prices and evolving living conditions, Patel noted that the Monetary Policy Committee (MPC) has kept the policy stance neutral due to lack of significant development between October and now on the macroeconomic front.
He further claimed that the MPC expects seasonal moderation in price of vegetables and lowering of taxes under GST to mitigate a portion of the pressure.
The MPC also noted that as per the reviews conducted, the corporate sector is contending with rising input cost conditions and higher risks of retail prices.
In terms of credit flow, the central bank Governor revealed a significant improvement compared to October last year, adding that as the economy picks up, demand for credit will go up.
With regards to India's recent upgrade on the Ease of Doing Business rankings, Patel opined that the recent economic reforms such as the bank recapitalization plan and stringent implementation of the Insolvency and Bankruptcy Code, 2016 will help sustain FDI inflow, thereby nurturing higher growth.
The central bank earlier in the day kept the repo rate and reverse repo rate unchanged at 6 percent and 5.75 percent respectively.
The projection of real GVA (gross value added) growth for 2017-18 of the October resolution at 6.7 percent has been retained.
"On the whole, inflation is estimated in the range 4.3-4.7 percent in Q3 and Q4 of this year, including the HRA effect of up to 35 basis points, with risks evenly balanced," the apex bank said in its policy statement.
The MPC estimates growth in the third and fourth quarter of this fiscal year to be 7 and 7.8 percent respectively.
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