The pandemic will expand the government’s fiscal deficit beyond 3.5 per cent of India’s gross domestic product (GDP), said Reserve Bank of India (RBI) governor as he called for a “well calibrated roadmap” to manage finances.

“The 3.5 per cent fiscal deficit target for this year will be very challenging to meet,” Das told news agency Cogencis in an interview. “It has to be a judicious and balanced call keeping in mind the need to support the economy on one hand and the sustainable level of fiscal deficit that is consistent with macroeconomic and financial stability.”

“There has to be a very well calibrated and well thought out roadmap for entry and exit.” The has not yet taken a view on monetising the government deficit.

“We will deal with it keeping in view the operational realities, the need to preserve the strength of the RBI’s balance sheet, and most importantly, the goal of macroeconomic stability, our primary mandate. In the process, we also evaluate various alternative sources of funding too,” he said.

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The has not participated in treasury bill auctions and neither has it decided whether there would be a special bond, instrument analysts have been suggested that can be used for a private placement of government debt with the central bank.

The central bank had a sense that the new Targeted Long Term Repo Operations or TLTRO 2.0 will might not be as good as the previous such operations, as “are not willing to take on credit risk in their balance sheets beyond a point,” he said.

The Reverse Repo Rate is a liquidity management tool, and the cut is temporary. The policy signaling rate continues to be the repo rate. While the does not need to take the approval of the monetary policy committee (MPC) for tweaking its liquidity tools, the central bank discussed the measure with the members.

RBI has not taken a final view on the rate of Standing Deposit Facility (SDF), which can be deployed to let park their excess liquidity with the central bank without any collateral, but at a lower rate than the reverse repo. However, SDF “is always available with RBI and it can be activated at any moment,” Das said.

India continues to enjoy the trust of foreign investors, and its banking system remains healthy, Das said.

can extend moratorium to everybody, including non-bank financial companies (NBFC), but the failure of TLTRO 2.0 proved that banks are not ready to take risk. The challenge of ensuring flows to the mid- and small-sized NBFCs and microfinance institutions continues.

“That is an issue that is very much on our table. We will take further measures as necessary to address that challenge.”

The RBI, according to Das, “remains in battle-ready mode”.

While extending the moratorium on loans, the RBI also told banks to set aside 10 per cent as provision, which can be written back later.

“We are constantly monitoring the sector. Going forward, whatever measures are required, we would mandate that,” he said.

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