In its annual report released on Thursday, the RBI quelled fears of a drought and said the trend so far suggests that the rainfall deficit situation was “way better” than the 2009 drought and impact on farm sector continues to be small still. The average reservoir level is above the average of the last 10 years.
RBI also said that though the vegetable prices spike led pick up in inflation in July made people sit up, it still does not constitute a significant departure from its January’s projected trajectory for price rise. Its latest assessment is that vegetable prices could cool off by November and its inflation projection of 8 per cent by January will be achieved.
For easing food price inflation pressures too, the Government will have to addresses the structural changes indicated in the Budget such as making NREGA wages productivity-linked, Food Corporation of India unbundling and removal of perishables from the ambit of the Agricultural produce marketing committee Act.
This is more so for vegetable prices that have been most volatile across all food items since January 2012, it said. Cereals, milk, egg, fish and meat remained persistently on an average in double digit level.
The report said the fiscal deficit target of 4.1 per cent of Gross Domestic Product (GDP) for the current year is realisable though concerted efforts will be necessary to achieve them, especially as the Finance Ministry has taken on a tougher target for tax buoyancy of 1.5 per cent against 0.8 per cent the UPA Government had set in its Interim Budget.
Raising concerns about the quality of fiscal adjustment by the UPA Government, it said budgetary targets for last year were made possible by sharp cutbacks in development and higher non-tax revenues, aided in a large part by higher dividend receipts from various public sector units. Capital expenditure was 18 per cent below budget target which has potential adverse implications for growth as public investment is critical to spurring private investments and the subsidy bill could not be contained at the budget targets.
Further, non-plan expenditure, which is Centre’s total spending on subsidies, salaries and pensions to government employees and defence remained unreduced.
Finance Secretary Arvind Mayaram said at an Assocham event that the Centre expects inflation to ease. The WPI inflation dipped to a five month low of 5.19 per cent in July, while the retail inflation was at 7.96 per cent.
He also said that the Modi Government’s first Budget has very strong growth impulses. He also said that factory output, especially passenger vehicle sales are already indicating signs of revival.
