Excessive borrowing bad, cap fiscal deficit: RBI tells govt

Cautioning the government that excessive borrowing is bad, Reserve Bank Governor D Subbarao today urged the government to put a cap on the public debt as it would hurt growth.

"There is an inflexion point beyond which fiscal deficits militate against growth. Government borrowing is not bad per se, but excessive borrowing is. There is therefore a need to cap total public debt as a proportion of GDP," Subbarao said in an address at the International Research Conference here.

The government's fiscal deficit in 2011-12 is expected to exceed the budget estimate of 4.6% of the GDP on account of subdued receipts and overshooting of the subsidy bill by at least Rs 1 lakh crore over and above the original projection.

In order to bridge the receipt-expenditure gap, the government plans to exceed its borrowing target for the current fiscal by Rs 92,000 crore over budget estimate of Rs 4.20 lakh crore.

The RBI had also flagged the issue of rising fiscal deficit at several occasions earlier, including its third quarter monetary policy review in the last week of January.

The government, as indicated by Finance Minister Pranab Mukherjee, is expected to announce steps to contain fiscal deficit in the budget for 2012-13 to be unveiled sometime in March.