The Hindu : Fiscal deficit not to hinder growth

Online edition of India's National Newspaper
Wednesday, Sep 24, 2003

Business

Business

Fiscal deficit not to hinder growth — RBI Governor

DUBAI SEPT. 23. The fiscal deficit of about 5 per cent will not pose any problems for the higher growth path of Indian economy even though it could normally be an impediment, the RBI Governor, Y. V. Reddy, said today.

"It is a not a problem for higher growth rate in India,'' Dr. Reddy told reporters after attending the Joint Annual Session of the World Bank and the IMF here.

He also said the debt in India should be seen in the context of its medium-term implications and not short-term and indicated that the external debt was mostly of long gestation period.

"In many of the countries where high fiscal deficit is posing a problem, it is mainly due to the high component factor of the foreign exchange in their debt while in India it was not the case,'' he said.

In India the passage of the Fiscal Responsibility and Budget Management Bill is intended to rein in deficit, he said adding the fiscal deficit should also be seen in the context of the domestic saving rate.

Dr. Reddy said India was committed to multilateralism as a founder-member of GATT and WTO but it has to be done in such a way as to take care of the important trade issues.

He disagreed that the $86 billion foreign exchange reserves in India will pose a problem. "The scope for exchange rate flexibility particularly in view of the build up of reserves of many countries has generated interesting debate and warrants an analytical approach from several perspectives,'' Dr. Reddy added.

He said international liquidity support through official channels is beset with problems relating to adequacy of volumes, timely availability, reasonableness of costs and above all extent of assurances.

It is also a reflection of efforts by emerging economies to contain risks from external shocks, he said.

Developing countries face major challenges in their efforts for sustained economic growth and on poverty reduction, Dr. Reddy said.

The Finance Secretary, D. C. Gupta, said World Bank and IMF officials had responded positively to India's demands for higher assistance from donor countries. — PTI

Printer friendly page
Send this article to Friends by E-Mail

Business