NEW DELHI: RBI governor Shaktikanta Das on Monday said government borrowings smaller than market estimates will free up more capital for the private sectorresulting in flexibility inflation and driving growth.
He also supported the government's focus on investment, arguing that it is a GDP multiplier as it creates a 1.2-1.4 times multiplier effect. “A boost in investment is always welcome,” he told reporters after a post-budget meeting of the central board, which was addressed by FM Nirmala Sitharaman. “This year's debt is lower than what markets initially expected. A smaller volume of debt means… it would guarantee that much more resources will be available in the banking system to meet the needs of the private sector,” said the governor.
Furthermore, he hopes that reducing debt will help stabilize inflation. In the interim budget, Sitharaman outlined a fiscal consolidation roadmap with the aim of reducing the fiscal deficit to 5.1% of GDP next year and to 4.5% in FY26. Furthermore, the government proposed lower debt for the next financial year due to the buoyancy of tax revenues.
Noting that the amount of borrowing is very important for monetary policy, Das said, “While making monetary policy, it is one of the factors that is taken into consideration. I would say it induces growth and helps moderate inflation levels.” On the debt-to-GDP ratio, Das said it reached 88% during the Covid period and has now moderated to 81%.