Budget unlikely to have much inflationary impact: RBI Governor Shaktikanta Das

Amid concerns over the economic slowdown, RBI chief Shaktikanta Das on Saturday said credit growth momentum is picking up and ruled out any possible spike in inflation due to Budget proposals as the government is maintaining "fiscal prudence".

After the first meeting of the RBI board post-2020-21 Budget presentation, Das also expressed hope that transmission of rate cuts would improve further.

The meeting, which was also addressed by Finance Minister Nirmala Sitharaman, discussed various Budget proposals.

"The direct inflationary impact of any budget is the fiscal deficit number when borrowing goes up, but the government has adhered to the principle of fiscal prudence.

"The 'escape clause' under FRBM Act, the deficit number in the current year as well as the next year is very much within the parameters set as per FRBM committee recommendations," Das said.

Facing revenue shortage, the government raised the fiscal deficit target to 3.8 per cent of the GDP for 2019-20 in the budget, from the 3.3 per cent pegged earlier.

The government has utilised 'escape clause' under the Fiscal Responsibility and Budget Management (FRBM) Act, which allows the Centre to breach its fiscal deficit target by 0.5 percentage points at times of severe stress in the economy.

Meanwhile, the finance minister said the government is monitoring farm credit given by banks in rural areas, adding that she expects to meet the increased target of Rs 15 lakh crore for the next fiscal.

"Credit limit has been expanded. I am sure it is based on local ground level requirement...we expect the demand to grow and credit requirements to also meet up with it. I am actually closely monitoring banks and their extension of credit facility particularly to rural areas. So I think we'll be able to meet that," Sitharaman said.

The farm credit target for the current fiscal has been set at Rs 13.5 lakh crore.

Speaking on the inflationary impact of the Budget proposals, Das said, "The good part of the government borrowing is also budgeted to come from small savings. Therefore, I don't see much of an inflationary impact."

"Declining crude prices has definitely a positive impact on inflation...The main reason for the spike in inflation is because of food inflation, mostly milk, fish, and various protein-related items. Core inflation has slightly edged up because of revision of telecom tariffs," he added.

Retail inflation based on consumer price index (CPI) soared to a near six-year high of 7.59 per cent in January, surpassing the Reserve Bank of India's comfort range primarily on account of rising vegetable and food prices.

Similarly, wholesale prices-based inflation accelerated to a 10-month high of 3.10 per cent in January, mainly due to costlier food articles, particularly onion and potato.

Economic growth has been slowing in recent months and the RBI has pegged GDP expansion at 5 per cent for the current fiscal ending March 31.

About the Supreme Court order regarding Adjusted Gross Revenue (AGR) dues to be paid by telecom companies, Das said the central bank would have internal discussions in case there are any issues arising out of it.

The court threatened contempt proceedings against top executives of Bharti Airtel, Vodafone Idea and other telecom firms for failing to comply with its directive to pay an estimated Rs 1.47 lakh crore in past dues.

The decision might have ramifications on banks in terms of their exposure to the financially-stressed telecom companies.

On moderating credit growth, Das said there are signs of uptick and the momentum is gathering pace. "Credit flow is slowly and steadily reviving... we do hope and we do expect the credit flow to improve in the coming months," he added.

Credit flow from all sources -- banks, domestic market and external commercial borrowing -- has improved to Rs 7.5 lakh crore, he said, adding nearly Rs 6 lakh crore flow has happened between October and January to the commercial sector.

"Within that, if you look at bank credit to the commercial sector, it was actually a negative growth at the end of September by about Rs 1.3 lakh crore or so. Now it is plus Rs 2.7 lakh crore, the latest number we have at the end of January. So this is within the total number I mentioned," Das said.

The board also recommended aligning the financial year of RBI, currently July-June, with the government's fiscal year (April-March) from the year 2020-21. It approved forwarding a proposal to the government for its consideration, the RBI said in a statement.

Addressing the board meeting, the finance minister outlined the thinking behind the Union Budget 2020-21 and the focus areas of the government.

She indicated increased complementarity in policy between the RBI and the government to address growth concerns, the statement said.

Complimenting the finance minister on the Budget, the board members made various suggestions for consideration of the government, it added.

Sitharaman was accompanied by Minister of State for Finance Anurag Singh Thakur, Finance Secretary Rajiv Kumar and Expenditure Secretary T V Somanathan, among other senior officials.

On February 6, the six member-Monetary Policy Committee (MPC) headed by Das, for the second meeting in a row, kept repo rate unchanged at 5.15 per cent but maintained the accommodative policy stance which implies it was biased in favour of cutting rate to boost growth.

Prior to going for status quo on rates in December, the central bank had slashed rates five consecutive times that resulted in a cumulative 1.35 per cent decline in repo rate.