Mumbai: Some members of the Reserve Bank of India's technical advisory committee on monetary policy voted against a cut in policy rates until credible signs of fiscal consolidation are seen, the central bank said in a release today.
The committee had met ahead of the RBI's third-quarter monetary policy review on Jan 24. The RBI released the minutes of the meeting today.
All the members of the panel expressed concerns over India's fiscal situation, saying the government is likely to overshoot the fiscal deficit target by a wide margin.
In Union Budget 2011-12 (Apr-Mar), the government had aimed for fiscal deficit of 4.6% of gross domestic product by the end of this financial year. However, the revised fiscal deficit number is estimated at 5.5-5.6% because of high subsidy burden.
Some committee members said the trend of high deficit is likely to continue beyond this financial year as the subsidy burden is expected to remain huge.
"Some members felt that the fiscal pressure would continue beyond 2011-12 as the monetary impact of entitlements such as Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA), oil, fertiliser and food subsidies would be significant," the RBI said.
India has been trying hard to lower its fiscal deficit and begin the fiscal consolidation process. The upcoming Union Budget 2012-13 is expected to provide a roadmap for this.
There was consensus among committee members domestic inflation has moderated, largely due to fall in food prices.
Some members said food price inflation might be moderate, which would soften inflation further. They also noted the fall in global commodity prices.
Likely slowing of food inflation, along with softening commodity prices, is expected to reduce inflationary expectations.
However, some other members said inflation remains high. These members voted in favour of the central bank keeping its monetary policy tight.
Most members of the committee expect inflation in the near future to remain at the levels it was in January due to 'structural issues' such as fiscal slippages, and rise in input prices because of the depreciation in the rupee against the US dollar.
Three external members of the committee suggested the repo rate--at which the RBI lends to banks under its Liquidity Adjustment Facility--be cut by 25 basis points. One member voted for a reduction of 50 bps.
Two members were for status quo on cash reserve ratio.

RBI Governor D. Subbarao chaired the meeting. The panel members are deputy governors Subir Gokarn, K.C. Chakrabarty, Anand Sinha, and H.R. Khan, Executive Director Deepak Mohanty, and department of monetary policy Advisor Janak Raj, among others.