Analyst said on Monday that RBI could hike rates this year because of possible inflationary impact the economy would have while trying to meet the fiscal deficit target of 3.5% for FY2020-21.
The analysts pointed towards the finance minister Nirmala Sitharaman discussing disinvestment where the government under-performed to achieve the 3.8% fiscal deficit target in FY2019-20.
Analysis of growth
The government wants to push the growth but with the help of a clause that allows the government to stretch its commitments under the Fiscal Responsibility and Budget Management Act by 0.5%. But it would show that the government missed the target for the third consecutive year.
Analysts of foreign brokerage Bank of America welcomed the government’s stand while flagging risks to the target. They see a 0.30% if GDP upside risk to the fiscal deficit target because of high disinvestment assumption of Rs. 2.10 lakh crore in FY21 that is almost three times of FY20’s Rs. 65,000 crore.
Goldman Sachs analysis
The analysts said that the achievement of government relies on privatization initiatives. They also said that if the estimates of revenue collections don’t materialize, the government would have to resort to expenditure cuts again.
They further said that any rise in fiscal deficit would be accompanied by a spike in inflation but it is already beyond the comfort level of RBI. The analysts said that it is more likely that RBI could shift its monetary policy from neutral to accommodative in the weekly review and it is likely to hike the rates in 2020 as well.