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RBI shouldn’t backstop loans beyond the FRBM limits

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It is clear now that the finances of both the Centre and the states are quite stretched. The Centre had surpassed its fiscal deficit target for 2018-19 at the end of January, while the aggregate fiscal deficit of 19 states had touched 62.5% of the budget estimate in the nine months to December 2018. The consolidated fiscal deficit is close to 6.5% of GDP and, if one includes the large off-balance-sheet borrowings that the Centre has resorted to—of close to Rs 2 lakh crore—this would be closer to 8.5% of GDP. The primary reason for the high deficits is the shortfall in tax collections and, in a couple of years, the shortfall from non-tax receipts, whether from disinvestment or telecom.

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Should tax collections be........

© The Financial Express