Tackle subsidies to restore fiscal discipline: RBI Deputy Governor

India’s fiscal situation is grim and tackling subsidies is key to addressing the fiscal situation faced by the country, according to a top RBI official.

Speaking at the South India Chamber of Commerce and Industry’s 102nd Annual General meeting here on Wednesday, Reserve Bank of India  Deputy Governor Subir Gokarn said that no solution will work to contain the fiscal deficit and tackling the subsidy bill should be a central part of the strategy.

His comments come in the wake of Kelkar panel warning that India is on the edge of a “fiscal precipice” and should urgently cut fuel, food and fertilizer subsidies to curb budget deficit.

Gokarn also said growth and inflation are linked and if one gets aggressive in controlling inflation it will affect the growth. Citing examples of Latin American and United States, he said only through sustained period of high growth can inflation be brought down.

“Inflation was high in United States due to oil shock and it took a recession to bring inflation down,” he said.

“If the inflation is beyond six percent level it becomes difficult to contain it because everybody links it to price formation, wages making it more difficult to contain it,” the deputy governor of RBI said. Stating that global and domestic development influences the growth and inflation trajectory, he said RBI will revise the inflation projection at its Oct 30 policy review. The food inflation was high due to increase in consumption of cereals, proteins and pulses. During last projection, it was expected to remain above 5 per cent till the end of the year.