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| Pvt investment not to be crowded out by govt borrowings: Pranab |
| BS Reporter / New Delhi Jul 12, 2009, 00:42 IST |
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 Finance Minister Pranab Mukherjee today said the Reserve Bank of India (RBI) would manage the government's market borrowings in a least disruptive manner.
Talking to reporters after addressing the RBI board, he said: “We will manage it with the cooperation, support and competence of RBI. There should not be any apprehension that private investment will be crowded out.”
Faced with slowing tax collections and increased expenditure, the Centre’s fiscal deficit — the difference between total revenue and total expenditure — has widened to 6.8 per cent of gross domestic product (GDP), the highest since economic reforms began. This will increase the central government’s borrowing to Rs 4,51,000 crore in FY10.
Combined with states' revenue gap of 4 per cent of their GDP, India's combined deficit will widen to 11 per cent of GDP — almost equal to half the household savings. RBI Governor D Subbarao said the central bank would endeavour to manage high borrowing by the government as in the past in “as non-disruptive a manner as possible.”
Further details about how it would manage were not disclosed. Earlier this week, Finance Secretary Ashok Chawla, who also attended the meeting today, said RBI would buy half of government securities through “open market operations”.
Today's meeting, a customary post-Budget interaction, was attended by top finance ministry officials, all three deputy governors and others members of the RBI board, including Wipro Chairman Azim Premji.
When asked about high interest rates prevailing in the economy, Mukherjee said the central bank would act at an appropriate time. “As and when the situation will require, appropriate action will be taken,” he added.
As part of its coordinated effort to boost economic growth, the RBI has slashed key interest rates by 4.25 percentage points since September 2008. But some economists predict the RBI will reverse its expansionary monetary policy as there are signs of recovery in the economy and possiblilty of return to high inflation.
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