Combined fiscal deficit of Centre, states may go up to 14% in FY21: Former RBI Governor C Rangarajan

The combined fiscal deficit of states and the centre during the current year may go up to 14 percent against the mandated level of 6 percent, former Reserve Bank Governor C Rangarajan said on Thursday.

Speaking at a programme organised by the ICFAI Business School, the former Chairman of the Economic Advisory Council to the Prime Minister said banks should neither be timid nor adventurous while lending as the loans of today should not become NPAs of tomorrow.

"So therefore we are essentially talking about 13.8 percent or 14 percent of the GDP (gross domestic product) as the overall fiscal deficit of the states and the Centre. It is obvious this is twice the mandated level. The mandated level for both the Centre and state is 6 percent of the GDP. It is twice or even more than twice of the estimated figure," he said.

According to him, the fiscal deficit may further go if the government decides to go in for additional borrowings to meet GST compensation part.

Rangarajan said RBI's monetary policy is "consistent" under the present circumstances and as a result banks have adequate liquidity for more lending.

He opined that governments need to spend more when the economy is in slump and it is essential to spend on healthcare, relief and rehabilitation and on stimulus to spur the economy.

"There are three types of expenditure required. One- expenditure on healthcare second is the expenditure on relief and rehabilitation. Third is expenditure on stimulus. And it appears that the government both at the Centre and states are somewhat slow in increasing expenditures," he said.

He said the economic growth of the country and other nations has come to a grinding halt due to lockdown to contain the spread of coronavirus.

However, he said capital flows into India was encouraging during the last three months.