'Managing borrowing more challenging than last year'

Caught between conducting the government’s borrowing programme smoothly and sucking out excess liquidity to tame inflation, RBI said managing the borrowing programme would be a bigger challenge in 2010-11.

“While monetary policy considerations demand that surplus liquidity should be absorbed, debt management considerations warrant supportive liquidity conditions,” RBI said, emphasising the need for a ‘fine balancing act’ to ensure that while absorbing excess liquidity, the borrowing programme was not hampered. The net borrowing in the current financial year, budgeted at Rs 3,45,010 crore, is lower than the previous year.

However, last year’s borrowing was managed by unwinding of market stabilisation scheme) securities and open market operations, as a result of which fresh issuance of securities constituted 63 per cent of the total budgeted market borrowings. However, in 2010-11, almost the entire budgeted borrowings will be funded by fresh issuance of securities.

“Notwithstanding the lower budgeted government borrowings in 2010-11 than in the year before, fresh issuance of securities will be 36.3 per cent higher than in the previous year. This presents a dilemma for RBI,” the central bank said.

The RBI has projected money supply growth at 17 per cent while aggregate deposits are projected to grow 18 per cent. Bank credit growth is seen at 20 per cent for 2010-11.