'Borrowings not to hurt private sector'

Finance Minister Pranab Mukherjee today tried to comfort the markets and said that the Centre’s gross borrowing programme of Rs 4,57,000 crore will be handled in a manner that it will not impact the credit requirements of the private sector.

“So far as market borrowing is concerned, last year it was arranged in cooperation with the Reserve Bank of India (RBI) in such a manner that the private sector did not feel any difficulty in meeting its legitimate credit requirement. This year too, the RBI governor (D Subbarao) has assured me that the private sector will not be elbowed out of the market,” said Mukherjee who was in Mumbai to attend RBI’s platinum jubilee function.

Traditionally, finance ministers meet the RBI central board after presenting the budget.

Mukherjee has budgeted the Centre’s gross borrowing during 2010-11 at Rs 4,57,000 crore, around Rs 6,000 crore higher than this year’s level, but net borrowings are projected to decline by over Rs 55,000 crore to Rs 3,45,000 crore.

Since February 26, when the budget was presented, the yield on 10-year government securities has gone up 11 basis points. The yield on the 6.35 per cent paper maturing in 2020 was 7.97 per cent on Friday, which is a 17-month high.

This year, the government had front-loaded its borrowing programme with two-thirds of the market borrowings undertaken in the first half. In an interview to Business Standard earlier this week, Finance Secretary Ashok Chawla had indicated that a similar calendar will be followed next year so that there is enough room for the private sector and the state governments to tap the markets. Next year’s borrowing calendar is expected to be finalised by the end of the month, Chawla had said.

While gross borrowings are rising, net borrowings are falling along with a decrease in the Centre’s fiscal deficit, due to the partial withdrawal from the fiscal stimulus. Mukherjee said the government will push for fiscal consolidation but economic growth will not be hampered. “One does not contradict the other (fiscal consolidation and growth). Without fiscal consolidation, the growth which we will have will not be sustainable. One of the major reasons we could withstand the pressure of the financial crisis was because of fiscal consolidation and adherence to FRBM (Fiscal Responsibility and Budget Management) Act, which also ensured consecutive three years of average growth of 9 per cent,” Mukherjee said in his first formal interaction with the media in Mumbai since he moved to finance ministry more than a year ago.

While reiterating the government’s target for the Indian economy to return to a 9 per cent growth path “as soon as possible”, the finance minister said: “Financial inclusion is a necessary condition for achieving equitable growth.”

Asked about the recent spurt in prices, Mukherjee said inflation was due to supply bottlenecks in some food items. He said that there was a demand-supply gap in the case of edible oil, pulses and sugar, and added that cereal prices were higher due to higher procurement prices, which he termed as a “cost-push ingredient” and not a product of monetary expansion.