Tokyo: Hardening of interest rates in
future due to huge market borrowings by the government remains
a concern, even as RBI kept all its signalling rates unchanged
in the first quarterly review of the monetary policy, Assocham
president Sajjan Jindal said in Tokyo Wednesday.
"Interest rates could inch up due to huge government
borrowings. That is a worry," Jindal, who is heading a
visiting business delegation to promote SEZs, said while
reacting to the RBI's quarterly review.
He said the RBI's move not to change policy rates or
reserve ratios is on expected lines.
However, the central bank is conservative so far as GDP
growth rates projections are concerned, he said.
RBI has projected the Indian economy to grow by six percent this fiscal.
Jindal said Assocham in its study said the Indian economy
could clock a growth rate of seven percent this fiscal.
Even then, GDP growth is not stable or high, he said,
adding any upward pressure on interest rates due to high
government borrowings could impact the economy.
As such, interest rates should not be allowed to move up,
he suggested.
The government has pegged its borrowings at over Rs 4.5
lakh crore for the current fiscal, 70 percent of which would
come in the first half itself, to finance the ballooning
fiscal deficit, projected to widen to 6.8 percent of GDP
during 2009-10.
In the quarterly review of the monetary policy yesterday,
RBI also said managing the government’s borrowing programme
for 2009-10 remains a challenge. The apex bank will meet the
challenges of spurring private credit demand by maintaining
policy rates and liquidity conditions conducive, it added.
Many quarters have expressed concerns that huge
borrowings will jack up interest rates and crowd out private
investment, while the government has allayed these fears.
Jindal suggested that the government should further
promote FDI to counter any liquidity problem due to its
borrowing programmes.
In fact, FDI of USD 25-30 billion is expected also
for the current fiscal as imports have fallen due to softening
crude prices, he added.
The central bank also said large fiscal deficit, if
continued beyond the recovery period, can crowd out private
investment and trigger inflationary pressures.
The central bank said the government will need to return
to the path of fiscal consolidation.
Bureau Report
First Published: Wednesday, July 29, 2009, 11:22