Fiscal numbers don't reflect pressures: Reddy

Reserve Bank of India Governor Y V Reddy said on Monday India's fiscal deficit continues to be among the highest in the world and the underlying pressures are not entirely reflected in headline fiscal numbers.

"The central fiscal situation has improved but several underlying fiscal pressures are not entirely evident in the numbers," Reddy said at an event organised by the National Institute of Public Finance and Policy.

In 2008-09, the Centre has budgeted to cut fiscal deficit to 2.5 per cent of GDP from 3.1 per cent in 2007-08.

The recent fall in fiscal deficit could be because of a reduction in public expenditure, Reddy said. Experts fear the Rs 71,680 crore (Rs 716.8 billion) farm debt waiver package and the implementation of the recommendations of the Sixth Pay Commission this year could adversely affect fiscal health.

Reddy said India's fiscal deficit, public debt and external debt as a proportion of GDP are one of the highest in the world, prompting The Economist to put the country as one of the three riskiest emerging economies.

Any easing of money supply through reduction in mandatory deposits of banks would depend on the country's fiscal situation, which still faces some underlying pressures and liquidity conditions, Reddy said.

"Further movement of cash reserve ratio depends on liquidity conditions," he added. RBI has hiked CRR to 8.25 per cent to tighten money supply amd contain inflation.

On statutory liquidity ratio, Reddy said, "So, the actual reduction (in SLR) depends on the fiscal situation," he said. Banks have to maintain 25 per cent of public deposits in SLR securities.