April 15, 2024


Delighting finance buffs

RBI chief says ‘very challenging’ to meet FY21 fiscal deficit target

Meeting India’s fiscal deficit target in the current financial year is going to be challenging and the central bank has not yet made a decision on its monetisation, the Reserve Bank of India (RBI) Governor Shaktikanta Das said.

India has spent more than a month in a nationwide lockdown, with its industries shut, to stem the coronavirus pandemic that has caused 26,496 infections and 824 deaths, among 2.97 million cases worldwide.

“Fiscal measures are important and the government is working on a package of measures,” Das told news agency Cogencis in an interview published on Monday.

Das said he expected the government to take a judicious and balanced call on the question of the fiscal deficit, while tackling the challenges arising from the pandemic.

“Meeting the fiscal deficit target of 3.5{b1ee4ac4d8d7b8e1af61a560a11ca52574b8103b547ccac8037ce0cdf9e7ba58} this year (2020/21) is going to be very challenging, and going beyond it becomes unavoidable,” he said, adding that direct tax collections may also be hit.

Das did not reply specifically to a question whether the RBI would monetise part of the fiscal deficit through private placement of bonds or issuance of any specific pandemic bonds.

“On the current situation, we haven’t taken a view on it,” Das said.

In making such a decision, the RBI will weigh operational realities, the need to preserve the strength of its balance sheet and the goal of macroeconomic stability, he added.

“In the process, we also evaluate various alternative sources of funding too,” he said, but did not elaborate.


The challenge of ensuring credit flow to small and mid-sized non-bank financial companies (NBFCs) and microfinance institutions continues to exist, Das said.

“That is an issue that is very much on our table. We will take further measures as necessary to address that challenge,” he added.

The RBI announced long-term and targeted long-term repo operations (TLTRO) to ensure credit flow from banks to NBFCs but banks used the money to buy government bonds or top-rated corporate debt.

The TLTRO 2.0 which was meant for lending only to NBFCs through banks has seen a muted response to the first auction.

“The auction results convey a telling message, which is that the banks are not willing to take on credit risk in their balance sheets beyond a point. We are reviewing the whole situation and based on that, we would decide on our approach,” Das said.

He reiterated that the banking system remained safe and sound but also said the RBI has improved and sharpened its supervisory systems and methods and are now taking a much more pro-active approach.

“We are doing a much more granular, deep-dive into financial institutions where we see some signs of vulnerability,” Das said. “This is much deeper than it was done ever before.”

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