MUMBAI: India's fiscal deficit target should be based on "whatever is required on the ground" to tide over the coronavirus pandemic and at a time like this, the government should not be constrained by the limits set by the Fiscal Responsibility and Budget Management Act, former governor of the Reserve Bank of India Bimal Jalan said.
The central government should go all out in providing resources to aid health services, and to boost investment in a bid to contain the economic impact of the coronavirus episode, and concerns about fiscal deficit numbers can be put on the back burner for now, Jalan said.
"You do have to balance your fiscal deficit number as well. But, these are not normal times. If the fiscal deficit instead of being x%, is 1.5% higher than x%, it does not matter all that much, because our inflation is under control, and we have the resources, and the foreign exchange reserves," Jalan said.
The Union Budget for 2020-21 had activated the escape clause provided in the Fiscal Responsibility and Budget Management Act for the last as well as current financial year, with FM Nirmala Sitharaman using the full 0.5 percentage points of space permitted by the clause, changing the targets for fiscal deficit to 3.8% and 3.5% of GDP, respectively.
It is widely expected that the fiscal deficit will rise from the projected 3.5% of GDP in 2020-21 (Apr-Mar) in view of the lockdown to curb the spread of the virus and its economic fallout. Jalan joined the chorus by supporting the idea that the RBI could monetise part of the Centre's fiscal deficit in the current year in view of the coronavirus outbreak.