Reserve Bank of India (RBI) Governor Raghuram Rajan, on Wednesday, said while the government might achieve the target of restricting fiscal deficit to 4.1 per cent of gross domestic product (GDP), more important would be the manner in which it would do so.
In an interview to a television channel, Dr. Rajan favoured an approach that focussed on increasing revenue collection.
Describing the 4.1 per cent fiscal deficit goal, the difference between the government’s income and expenditure, for the current fiscal set by the government as an ‘ambitious target’, Dr. Rajan said, “the government will achieve it if it wants to do so. It has done before. But how it achieves it is what is important.”
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“India has the capacity to bring its fiscal deficit under control because we don’t spend too much as fraction of GDP. Where we do a less good job is collecting revenues. So, broadbasing revenue collection process and expanding the base is the way we can do it,” he said in the interview.
The RBI Governor saw better prospects for growth in the coming days, a factor that should encourage the government to move towards the target. During 2013-14, fiscal deficit was 4.5 per cent of GDP.
“We think that prospects for growth have improved in the last few months. On the agriculture side, they have become more uncertain because of initial deficiency in the monsoon,” he observed.
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“Our sense of 5.5 per cent [GDP growth] is feasible. If it goes beyond that, the government gets some headroom on the fiscal front,” he added.
India’s Index of Industrial Production touched a 19-month high of 4.7 per cent in May due to a better showing by the mining, power and capital goods sectors. In addition, retail inflation fell to a 30-month low of 7.31 per cent in June as prices of food items, including vegetables came down.