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Prune fiscal deficit, Jalan tells Centre

Reserve Bank of India Governor Bimal Jalan today asked the Union government to make efforts in its forthcoming Budget for 1998-99, to prune the fiscal deficit to a reasonable level in order to contain the borrowing programme of the government in the current fiscal.

In a statement on the first-half monetary and credit policy for 1998-99, Jalan said if the projected increase in the market borrowing programme was too high, there could be pressure on interest rates which in turn could affect the expected rate of inflation and investment in the economy.

In the interim Budget for 1998-99, the gross fiscal deficit of the Union government is provisionally projected at 6 per cent of the Gross Domestic Product as per current trends. The budgetary operations of the government would naturally influence the Reserve Bank's liquidity management operations as well as its own support to market borrowing programme. The ultimate level of net RBI credit to the government will depend, inter alia,on the size of the final deficit, growth in bank deposits and the overall pick-up in the economy.

The RBI said the substantial expansion of domestic credit to both government and commercial sectors had increased the money supply growth to 17 per cent in 1997-98 as against the target of 15 to 15.5 per cent. The rise in the banking sector's credit to government was reflected in the rise in the gross fiscal deficit of the Union government to 6.1 per cent of the GDP as against the target of 4.5 per cent.

In gross terms, the government's market borrowings amounted to Rs 596.37 billion in 1997-98 as against Rs 361.52 billion in 1996-97. This year, the market borrowing programme of the government is estimated at Rs 860 billion.

UNI