Govt at ease with interest rates, says ministry aide

The Indian government is "not uncomfortable" with the current interest rate scenario as it is within a "tolerable threshold", a senior finance ministry official said Monday. The official also said the current liquidity crunch was temporary.

"All I can say on interest rates is that we are not uncomfortable. They are within a tolerable threshold," the official told reporters. The current interest rate regime was not hurting growth in the economy, he said.

The "minor constraint" in liquidity in the system was temporary, the official said.

The government will not put any pressure on the liquidity by borrowing additional amount from the market, he said.

"If nothing untoward happens in the next 75 days, we will hold the line on borrowing and fiscal deficit in the current financial year," the official said.

"If possible, we will spend a rupee less (compared with the expenditure target of Rs 5.14 trillion in the current financial year to March)."

The government will try to reduce the non-plan expenditure in the current financial year, he said. In the first eight months of 2005-06, the non-plan expenditure was Rs 2.11 trillion, accounting for 56.8 per cent of the budget target of Rs 3.71 trillion for the entire year.

Asked whether the government will raise sovereign debt from foreign markets, the official said there was no need for it to tap overseas markets.

The government will review the situation in mid-March and may borrow in late March for the next financial year (starting in April) spending, he said.

The borrowing will be within the overall borrowing target of Rs 1.39 trillion for the financial year 2005-06, the official told reporters.

So far in the current fiscal, the government has cancelled one borrowing of Rs 4,000 crore, which was scheduled in October and lowered borrowing amount by Rs 2,000 crore in May.

As per the gilt issuance calendar, the government is scheduled to borrow another Rs 14,000 crore between February 8 and 22.

The government will stick to the Fiscal Responsibility and Budget Management Act targets to reduce fiscal and revenue deficit next year, the official said.

In the current financial year, the government has set a fiscal and revenue deficit target of 4.3 per cent of gross domestic product (GDP) and 2.7 per cent of GDP, respectively.

In the first eight months, its fiscal deficit stood at Rs 1.129 trillion, accounting for 74.7 per cent of the budget estimate of Rs 1.511 trillion for the entire year.

According to the Fiscal Responsibility Act, every year the government has to reduce fiscal deficit by 0.3 per cent of GDP and revenue deficit by 0.5 per cent of GDP.

The government had put a "pause" on fiscal responsibility targets in 2005-06 in view of the additional strains due to the award of the Twelfth Finance Commission report.