“So therefore we are essentially talking about 13.8 per cent or 14 per cent 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 per cent 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.