RBI governor Raghuram Rajan hinted rather delicately to the government that it should not postpone the targeted fiscal deficit further as this would be seen as a negative by the rating agencies. He said that if the government wanted to change the goalpost it should do it upfront.
According to reports, Dr Rajan had also written to the finance ministry about this. In his C.D. Deshmukh Memorial Lecture he had said aggressive spending advised by some experts to boost growth over maintaining the fiscal deficit target was not a prudent idea as there was no guarantee that this expenditure would produce the desired results.
Union finance minister Arun Jaitley, more out of bravado than fiscal prudence, had decided to stick to the fiscal deficit target of 3.5 per cent for this fiscal fixed by his predecessor, Mr P. Chidambaram. This had raised many eyebrows as it seemed impossible even then. Granted he is not an economist and did not take into account various global and domestic factors that would make this an impossible target to achieve.
But it is surprising that even after Mr Jaitley became aware of the huge mess the Manmohan Singh government had left the economy in, he still stuck to his target like the boy on the burning deck. And now he has shifted this target to the next fiscal and has given a new target of 3.9 for this fiscal. One does not know how he arrived at this figure and whether he discussed it with Dr Rajan. Hopefully he will be able to meet this new target, one that does not give him much leeway considering the challenges ahead.
