Quality of expenditure needs government’s attention: Shaktikanta Das

Delivering the 39th Nani Palkhivala Memorial Lecture, the RBI Governor maintained that while the conventional parameters of fiscal discipline will ensure the medium and long-term sustainability of public finances, measurable parameters of quality of expenditure would ensure productive outcomes.

Hyderabad:As the government is likely to loosen its purse strings in the upcoming budget to support the economic recovery in the post-Covid-19 scenario, the Reserve Bank of India (RBI) Governor Shaktikanta Das has a piece of advice for fiscal policymakers.

While emphasising the need to continue with quantitative aspects to better monitor the fiscal situation, the Governor suggested that measurable parameters should be evolved to assess the quality of expenditure.

“Fiscal roadmaps are defined not only in terms of quantitative parameters like fiscal balance to GDP ratio or debt to GDP ratio but also in terms of measurable parameters relating to the quality of expenditure, both for centre and states,” said Shaktikanta Das while delivering the 39th Nani Palkhivala Memorial Lecture through a virtual platform.

According to Das, as the government's spending on social infrastructures like health and education would go up in the aftermath of the pandemic, improving the quality of expenditure will help in achieving better outcomes.

“While the conventional parameters of fiscal discipline will ensure the medium and long-term sustainability of public finances, measurable parameters of quality of expenditure would ensure that welfarism carries significant productive outcomes and multiplier effects,” he said.

RBI Governor sounds caution on the bull run in the market

Das has said that domestic financial markets must remain prepared for sudden decline going ahead in case risk aversion takes hold among investors globally.

"While abundant capital inflows have been largely driven by accommodative global liquidity conditions and India's optimistic medium-term growth outlook, domestic financial markets must remain prepared for sudden stops and reversals, should the global risk aversion factors take hold," he said.

The Governor’s comments assume significance in the backdrop of around 90 per cent growth in the key stock market indices in the last nine months, raising concerns of stretched valuations.

In fact, this is the second time in a week that Das has raised concerns regarding the bullish trend in the stock market.

In his foreword to the latest Financial Stability report, released last Monday, the Governor said that the stretched valuations of financial assets pose risks to financial stability.

He further noted that banks and financial intermediaries need to be aware of these risks and spillovers in an interconnected financial system.