FM upbeat on growth, RBI sounds caution

New Delhi: Finance minister Pranab Mukherjee on Tuesday said the monetary policy announcement should help revive investment and strengthen business sentiment. He also promised that in coming weeks, additional steps would be taken to reinforce the focus on growth. 

    But the Reserve Bank of India (RBI) has flagged some key concerns that could hurt growth and inflation in the months ahead. "Domestically, the state of the economy is a matter of growing concern. Though inflation has moderated in recent months, it remains sticky and above the tolerance level, even as growth has slowed," RBI governor Subbarao said. 

    "Significantly, these trends are occurring in a situation in which concerns over the fiscal deficit, the current account deficit and deteriorating asset quality loom large." 

    The governor said several upside risks to the budgeted fiscal deficit of 5.1% of gross domestic product remain even though the Budget envisages a reduction in the deficit in 2012-13. Economists have also expressed doubts about the government's ability to stick to the fiscal deficit target set in the Budget for the current fiscal and have slammed the lack of any credible plan to restore the health of public finances. 

    "Going by the recent burden-sharing arrangements with the oil marketing companies (OMCs), the Budget estimate of compensation for under-recoveries at the present level of crude prices is likely to fall significantly short of the required amount. Any slippage in the fiscal deficit will have implications for inflation," the governor said. The central bank has identified the uncertainty of global commodity prices as another key risk. RBI urged the government to raise prices of petroleum products. 

    But, Mukherjee vowed there would be no slippage on the fiscal deficit front. "Let me assure you that the budgetary exercise has been done with due diligence and I would do my best to restrict the government expenditure to the budgeted figures," he told the AGM of CII.

I'd do my best to restrict govt expenditure to budgeted figures 

Pranab Mukherjee 

FINANCE MINISTER