The rapid decline in fiscal health and deterioration in the external sector outlook has prompted the Reserve Bank of India (RBI) to ask the government to hasten domestic reforms to curb its subsidy bill and encourage renewed equity flows.
The government had targeted to contain the fiscal deficit at 4.6 per cent of GDP in FY12. RBI warned unless fiscal reforms were expedited, the Centre could miss the target of 4.1 per cent of GDP for 2012-13.
The improving fiscal situation in 2012-13 is contingent upon growth and on the progress in implementation of tax and expenditure reforms.
On the weak external sector conditions, RBI said the pressure on current account deficit (CAD) and its financing persisted through the third quarter of 2011-12. Capital inflows turned weaker.
CAD is expected to widen during the year, despite a faster rate of growth of exports compared with imports in April-September. The combined CAD for the April-September period widened to $32.7 billion (3.6 per cent of GDP) from $29.5 billion (3.7 per cent of GDP)
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