FM allays fears on rise in interest rates after Govt borrowing

NEW DELHI: The Government on Wednesday allayed fears that its high borrowings, pegged at around Rs four lakh crore in the current fiscal, would jack up interest rates and leave little resources for private sector.

"There is no reason to be concerned about private sector being crowded out because of increased government borrowing, nor there should be undue concern about increase in nominal interest rates," Finance Minister Pranab Mukherjee told Rajya Sabha in reply to the debate on Budget.

He said the cost of borrowing has been significantly lower so far in the current fiscal despite high government borrowings.

Mukherjee said public sector banks have reduced deposit and lending rates from time to time in response to RBI measures to cut policy rates and reserve ratios.

The Government borrowings are being supported by the RBI's open market operations (OMO), through which the central bank sucks out or injects liquidity into the system against government papers, Mukherjee said.

He said OMO should not be confused with monetisation of public debt, while categorically saying that the Government does not have any intention of monetising its debt.

The Government has pegged its borrowings at around Rs four lakh crore this fiscal to fund fiscal deficit which is estimated to widen to 6.8 per cent of GDP this fiscal.