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Amid fears of economic slowdown, RBI chief Shaktikanta Das has said that 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. He expressed hope that transmission of rate cuts will improve further in the coming days. He noted that the 'escape clause' under FRBM Act, the deficit number in the current year as well as the next year are very much within the parameters set as per FRBM committee recommendations. He added the government raised fiscal deficit target to 3.8 percent of the GDP from 3.3 percent pegged earlier for 2019-20 due to revenue shortage.
Talking 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, he said ‘I don't see much of an inflationary impact. Declining crude prices has definitely a positive impact on inflation.’ He pointed out that 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.
On moderating credit growth, RBI chief said there are signs of uptick and the momentum is gathering pace. He also said ‘credit flow is slowly and steadily reviving... we do hope and we do expect the credit flow to improve in the coming months.’ He highlighted that credit flow from all sources -- banks, domestic market and external commercial borrowing -- has improved to Rs 7.5 lakh crore and nearly Rs 6 lakh crore flow has happened between October and January to the commercial sector. He added ‘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.’