Fiscal deficit will not be in 'double digits': Montek

New Delhi, June 21 (PTI) Seeking to mollify the fears of
banks that high government borrowing would not allow interest
rate to come down, the Planning Commission of India on Sunday
said the fiscal deficit will be high, but not in "double
digits".

"Bankers are always concerned about the size of the
government's borrowing. Because it is very very large, many of
them think that the interest rate on government debt will rise
and they would rather retain liquidity now in order to invest
in high-yielding government bonds," Planning Commission Deputy
Chairman Montek Singh Ahluwalia said.

He, however, advised bankers to wait as nobody knows what
the government borrowing would be till the Budget and added,
"I feel it will be possible to accommodate a reasonable
fiscal deficit".

As regards the likely fiscal deficit in the current year,
Ahluwalia said, "I don't want to speculate on any of the
Budget numbers, but I have no doubt that the Central
government's fiscal deficit will not be in double digits."

People, he stressed, "should not look for a return this
year to the normal fiscal deficit, which used to be 3 per
cent. It should be significantly higher."

Fiscal deficit, which is roughly the difference between
total expenditure and total receipts, is an indicator of
government borrowing.

On account of various stimulus packages announced by the
government to arrest the impact of the global financial
meltdown on the country, the fiscal deficit during 2008-09
shot up to over 6 per cent of gross domestic product (GDP) as
against the original estimate of 2.5 per cent.

"There were below the line items, what you might call the
hidden items amounting to about 1.8 per cent of the GDP. So on
an inclusive basis the fiscal deficit was 7.8 per cent,"
Ahluwalia said.

Pointing out that all over the world countries are
running high fiscal deficits, he said, "In the US and the UK
it is 10-11 per cent of GDP. So we should not worry that we
are abandoning the old FRBM target of 3 per cent for the
present."

As regards the impact of the high fiscal deficit on
interest rates, Ahluwalia said, "It has been possible to
absorb the large fiscal deficit because private investment has
obviously been less than (it) would have been otherwise.

"If we feel that private investment is going to be below
normal this year also, the demand for funds by private
investment will be lower and that creates space for more
fiscal deficit without too much damage to the interest rates,"
he added.

Admitting that the monetary policy stance does have a
bearing on interest rates, he said, "I am sure the Finance
Ministry and the RBI are in close contact on this issue."
PTI KKS