Govt borrowings won't affect interest rates: FM

Pranab has projected government borrowings of Rs 4.51 lakh crore for the current fiscal

Amidst concerns over possible rise in interest rates due to the huge government borrowing programme, Finance Minister Pranab Mukherjee today reassured that interest rates would not rise in the next few months.

“Last fiscal also the Reserve Bank of India (RBI) was prudent in debt management, and this year also we will ensure that the private sector can avail loans at affordable rates, and do not pay higher interest rate,” said Mukherjee here today after the simultaneous inauguration of 154 State Bank of India (SBI) branches and 2,151 ATMs across the country.

In the 2008-09 Budget, the government had projected a borrowing of about Rs 1 lakh crore, but due to the economic slowdown, the resultant slowdown in the manufacturing sector and low revenue collection, the borrowing was raised to nearly Rs 3 lakh crore, the minister said.

The finance minister said he held a meeting with the board of directors of the RBI yesterday for post-Budget discussions.

The Budget has projected a gross government borrowing of Rs 4.51 lakh crore for the current fiscal, about Rs 89,000 crore more than what was forecast in the Interim Budget.

Bankers have been anticipating rise in interest rates in the next six months, due to the government borrowing and the divergence between the consumer and wholesale price indexes.

“As part of the interest rate cycle, we have seen that in the past few months the interest rates have softened. The situation is now going to turn in the third quarter, when the corporate demand picks up, one should be ready for higher interest rates,” IDBI Bank Chairman and MD Yogesh Agarwal had said recently.

State Bank of India had also echoed a similar view.

The finance minister also said that the government was aware of the divergence between the CPI and the WPI, and the government has set up a committee under the Central Statistical Organisation for overseeing the convergence between the two.

SBI plans to open 1,000 more branches and 10,000 ATMs in 2009-10, majority of which will be in the rural and semi-urban areas.