The Hindu Business Line : Govt to go ahead with market borrowings

THE Finance Minister, Mr P. Chidambaram, today said that the Centre would go ahead with its market borrowings programme for the current fiscal, even as the cost of governmental borrowings is showing a rising trend.

"We have to borrow what we have planned to borrow. We will complete the borrowings programme and borrow at whatever rate the market decides," Mr Chidambaram told newspersons here.

At the same time, he ruled out the possibility of governmental borrowings `crowding-out' borrowings by corporates, leading to an overall increase in interest rates.

As on October 21, the Centre has completed gross market borrowings of Rs 75,044 crore, corresponding to 49.8 per cent of the budgeted amount for 2004-05.

In his Mid-Term Review statement, the Reserve Bank of India Governor, Dr Y.V. Reddy, had noted that the "larger than usual" borrowing slated for the second half of the year would mean that governmental borrowings in the coming months need to be "calibrated carefully".

He had further warned that the "lower appetite" for gilts in the current scenario of increased non-food credit offtake would have "implications for government borrowings in an environment of market determined interest rates".

Mr Chidambaram, however, said there was still enough liquidity in the system and the issue of crowding-out does not arise. In fact, the move by the RBI to raise its repo rate by 25 basis points was a reflection of this very perception, he added.

The Finance Minister welcomed the overall policy stance taken by the RBI as being "in broad agreement with our approach" and "there is nothing in it that will discourage investment or hamper growth".

Regarding the RBI's revised projections of GDP growth of 6-6.5 per cent and year-end inflation rate of "around 6.5 per cent" — against the earlier expectation of 6.5-7 per cent and "around 5 per cent", respectively — Mr Chidambaram said that these were realistic in the context of spiralling crude prices and deficient monsoons.

The Finance Minister held that the present inflation was largely supply-induced, while dubbing it as "petroflation".

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