Reserve Bank Deputy Governor Subir Gokarn welcomed the budget proposals to check fiscal deficit by keeping a tab on the subsidy bill, saying they are the right steps towards fiscal consolidation and offer the central bank more leg-room on monetary policy front.
"We have been saying that the more extended the fiscal position the more pressure it puts on demand and therefore more difficult it is to manage inflation...these measures give us some comfort," he told newsmen at an official briefing on budget.
The Budget today proposed to bring down fiscal deficit to 4.6% next fiscal from this year's 5.1%. The Budget also proposed to bring down net market borrowing of the Government by Rs 40,000 crore to Rs 3.43-lakh crore in FY12.
The measures to tackle fiscal deficit would help as the monetary measures taken by the rbi tend to get nullified by the high fiscal deficit, he observed adding, "the more there is reigning-in, the more room there is for monetary policy to act."
Liquidity would not be volatile next fiscal as there would be lesser government borrowing which coupled with no major cash outflow from the system, as had happened earlier this fiscal due to the spectrum auctions.
Gokarn also called the Government''s articulation about the change in food consumption patterns to fruits and protein- rich food as a step in the right direction, as such items have been fuelling food inflation. .
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