Higher govt borrowing may not eat up public credit: RBI

Reserve Bank Deputy Governor KC Chakrabarty today said private credit demand will not be crowded out as a result of higher market borrowing by the government even as the fiscal deficit target for next fiscal is pegged at 5.1%.

"The idea of 5.1% fiscal deficit should not deprive credit needs of the society," he told PTI at an HDFC Bank event here.

In the FY13 Budget, Finance Minister Pranab Mukherjee has targeted a fiscal deficit of 5.1% and a net market borrowing of Rs 4.79 lakh crore to overcome it.

When asked if the higher fiscal deficit, as proposed which forces the government to borrow extra from the market, would crowd out private investment, the deputy governor said, "I don't think so.. Legitimate credit demand will not be crowded out."

Chakrabarty said before arriving at the fiscal deficit number, the government does a lot of groundwork which entails assessing the credit requirements of the industry and agriculture, apart from what it will need for itself.

"I think all these exercise has been done and based on that, what has been prepared, will ensure credit needs of the society," he said.

According to the experts, excess borrowing by the government ends up hurting credit flow to the private sector.

As against the targeted deficit of 4.6% announced in last year's Budget, a combination of factors such as higher subsidies, rising crude prices and deteriorating macroeconomic situation have caused the number to go up to 5.9% for FY12.

The government has already ended up borrowing Rs 92,000 crore in excess of the targeted Rs 4.17 lakh crore for FY12.

The Reserve Bank, led by Governor D Subbarao, had been demanding that the government take steps towards fiscal consolidation in the run-up to the Budget.

Asked if the Budget numbers sound credible, Chakrabarty said the RBI will examine the steps being taken by the government in the coming months.

Source: Business Standard