India’s fiscal stability shaky, says RBI

The Reserve Bank of India (RBI) today said that risks to India's macro-economic stability have increased due to an economic slowdown, high inflation, and ballooning fiscal and current account (imports against exports) deficits.

A slowdown in domestic savings as well as investment demand along with a moderation in consumption also threaten macroeconomic stability, the central bank said in its financial stability report (FSR) issued today.

"The overall macro-economic risks in the financial system seem to have increased since the publication of the previous FSR in June 2012," RBI wrote in the report.

India's economy is expected to grow 5.7-5.9 per cent for the fiscal year ending in March, the slowest since 2002-03. Growth prospects also remain below the recent trends.

The current account deficit continues to remain a concern as India has seen exports fall due to weak demand in key markets like the United States and Europe. Imports of gold and oil have remained high.

On the fiscal side, the government could see a shortfall in tax and non-tax revenue because of the economic slowdown, and is at risk of overshooting its expenditure targets, RBI said.