According to Mr Subir Gokarn deputy governor of Reserve Bank of India, the Reserve Bank of India does not see any challenge in managing the borrowing program for fiscal year 2011/12, after the government unveiled a lower-than expected borrowing figure in its federal budget.

Mr Gokarn said that "In the aggregate sense, as a reflection or as a per centage of the overall credit growth, overall deposit growth and so on, this (borrowing) does not pose too much of a challenge in our estimate in terms of managing.”

The government plans to borrow a gross INR 4.17 trillion (USD 92 billion) in 2011/12, which would mean a net borrowing of INR 3.43 trillion.

New Delhi's bond issuances in the next fiscal that starts April 1 had been forecast at INR 4.50 trillion on a gross basis, and INR 3.77 trillion on a net basis.

Mr Gokarn added that liquidity situation should be less volatile in 2011/12 than the current year in the absence of any one off gains in the next fiscal.

The government had a windfall gain of INR 1.06 trillion through telecom spectrum auction in first half of 2010/11, which had resulted in a sharp tightness in banking system liquidity.

Banks, which had surplus funds in the first half, ended up borrowing more than INR 1 trillion from the RBI in the second half due to the government's inability to expedite spending of its spectrum proceeds.

Mr Gokarn said the fiscal deficit target of 4.6% of the gross domestic product would help provide some relief in terms of the macro economic impact of the fiscal position. The government expects the deficit to be at 5.1% in the current fiscal.

He added that "We have been saying the more expanded the fiscal position, the more pressure it puts on demand and, therefore, the more difficult it is to manage the inflation situation, the inflationary pressures coming from the demand side. This reduction in the deficit gives us some comfort that the correction is happening and it's happening significantly.”

(Sourced from BS)