The Hindu Business Line : `Net govt borrowing to be higher'

"There is nothing surprising about the government borrowing programme for 2007-08. It reflects fiscal consolidation," said Dr Rakesh Mohan, Deputy Governor, RBI.

On the excess cash in the system, Dr Mohan said, "Overall, there is excess liquidity in the system".

He also stressed that RBI's emphasis would be on price stability in the current situation and all measures would be used to curb inflation.

"The Market Stabilisation Scheme provides an additional tool for liquidity management," Dr Mohan told presspersons.

"Despite large allocations for the agricultural sector and other schemes, the government deficit is well under control and targeted at 3.3 per cent of the GDP. The borrowing programme will thus not draw out too much money from the system and add to the upward pressures on interest rates," said Mr Gautam Vir, MD and CEO, Development Credit Bank.

Union Budget 2007-08 has also proposed setting up an autonomous Debt Management Office (DMO). This has been welcomed by many in the market as the RBI will not be anymore managing government borrowings. The central bank will be exclusively in charge of monetary policy. In the first phase, a middle office will be set up to facilitate the transition to a full-fledged DMO.

The Tarapore Committee on Rupee Convertibility had strongly backed the idea some years ago.

Market participants felt an autonomous entity would mean that primary dealers would now have to bear higher bidding and underwriting risks.

"There will now be greater devolvement on primary dealers in the case of an auction," said a dealer. In most developed countries, the central bank is not involved with conducting government security auctions, said analysts.

"It is a great move but we are awaiting the finer details. Since, the body will be autonomous it will be more focussed on debt management. With a growing economy, the RBI will be more focussed on monetary policy," said a chairman of a public sector bank.

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