As pressure mounts on RBI Governor Raghuram Rajan to cut rates tomorrow to lower cost of capital, the government today said an "investment-driven" demand revival is required to push growth and affirmed its commitment to meet the fiscal deficit targets.
"We've carved out a roadmap to move towards a 3 per cent fiscal deficit. We gave a deadline of 3.9 per cent for this fiscal. I am confident we will be able to maintain it with all these additional expenditures," Finance Minister Arun Jaitley said at an event organised by Cogencis here.
Jaitley, who also said that inflation remains under control, has been one of the biggest votaries of a rate cut and has repeatedly been pointing to the comforting factors that merit a fourth rate cut by RBI this year.
Rajan, on the other hand, has been saying that the main priority for the central bank remains keeping inflation under check.
Apart from retail inflation, which ebbed to 3.66 per cent in August, the fiscal deficit number is another key factor that RBI keeps in mind for its monetary policy action.
A rate cut is being seen as a key trigger to boost investment demand in an economy where credit growth has dipped to a multi-year low.
Speaking at another event here, Economic Affairs Secretary Shaktikanta Das said that unlike in the aftermath of the 2008 crisis, where a fiscal stimulus helped the economy, the government does not have the fiscal space for a similar move to prop-up the economic growth. The GDP growth slipped to 7 per cent in the June quarter.
"The biggest challenge before us now is to ensure revival of demand in the domestic market in the context of different uncertainties world is showing," Das said, while adding that the revival hinges on "investment-driven" inflows rather than government spending.
Rajan will announce this fiscal's fourth monetary policy review tomorrow, where he is widely expected to cut rates by 0.25 per cent. The RBI, which is looking all set to achieve the inflation target of 6 per cent for January, has already delivered three cuts of a cumulative 0.75 per cent this calendar year.
In comments seen as tempering expectations, Rajan had last week said that inflation expectations continue to be higher.
