The Reserve Bank of India has decided to align its financial year with the government’s April-March financial year from 2020-21 and the central bank is “internally reviewing” its monetary policy framework adopted in 2015 that had set an inflation target of 4 per cent, within a tolerance band of +/-2 per cent.

The Bimal Jalan committee had recommended changing the accounting year to April-March. The RBI currently follows July-June as its accounting year.

“It is under consideration and you will very shortly hear on that,” RBI governor Shaktikanta Das told reporters after his post-budget meeting with the finance minister.

According to the Bimal Jalan committee, the switch in the accounting year would help to align dividend payments with the government’s budgeting process and avoid the practice of interim dividends, the committee had said.

MPC review

“The monetary policy framework is in operation for the last three years. We are reviewing and analysing it internally as to how the MPC framework has worked. At an appropriate time, if required, we will have discussions with the government,” Das said.

The agreement signed between the government and the RBI in February 2015 had set the inflation target for a period of five years. While the inflation target comes up for review in March 2021, the four-year term of the external members of the Monetary Policy Committee will come up for review by September 2020.

Credit growth

The RBI governor said credit growth momentum was picking up and ruled out any possible spike in inflation because of the budget proposals as the government was maintaining “fiscal prudence”.

“The direct inflationary impact of any budget is fiscal deficit number when borrowing goes up, but the government has adhered to the principle of fiscal prudence. The ‘escape clause’ under FRBM Act, the deficit number in the current year as well as the next year are very much within the parameters set by the FRBM committee,” he said.

Facing revenue shortage, the government has raised the fiscal deficit target to 3.8 per cent of GDP for 2019-20 in the budget from 3.3 per cent earlier. The government has used the “escape clause” under the Fiscal Responsibility and Budget Management (FRBM) Act, which allows the Centre to breach its fiscal deficit target by 0.5 percentage points at times of severe stress in the economy.

“The good part of government borrowing is also budgeted to come from small savings. Therefore, I don’t see much of an inflationary impact. The main reason for the spike in inflation is because of food inflation, mostly milk, fish and various protein related items,” he added.

Retail inflation based on the consumer price index has soared to a near six-year high of 7.59 per cent in January, surpassing the RBI’s comfort range on account of rising vegetable and food prices.