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India's deficit manageable but limits policy: RBI

India's fiscal deficit, at current levels, may be manageable but it limits the leeway to manage unforeseen developments, according to the central bank's Deputy Governor Y V Reddy.

"Fiscal empowerment appears to be essential for obvious reasons," Reddy said in a speech, released on Tuesday on the central bank's Web site www.rbi.org.in.

The speech was delivered at Cornell University in the United States on April 19, it said.

"While the existing level of fiscal deficit may be manageable, the headroom available for meeting unforeseen circumstances appears rather limited," he said, reiterating similar statements by central bank officials in the past.

Reddy also reiterated the central bank's commitment to reduce banks' cash reserve ratio to three per cent over time, from 5.5 per cent.

India has consistently overshot its fiscal deficit targets despite a decade of economic reforms.

In the year ended March, it is estimated to have posted a fiscal deficit of 5.7 per cent of GDP, sharply higher than its initial estimate of 4.7 per cent.

It has set a fiscal deficit target of 5.3 per cent of GDP for the current financial year.

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