RBI Calls for Coordinated Efforts on Government Borrowing

Mumbai: The Reserve Bank said large government borrowing programmes could crowd out credit for the private sector and called for coordinated efforts to avoid pressure on the liquidity situation.
Addressing a conference of state finance secretaries, RBI Governor D Subbarao also stressed on expenditure restructuring for fiscal consolidation.
The Centre's fiscal deficit widened to 5.9 per cent in 2011-12, up from 4.6 per cent budget estimate.
Highlighting that the large borrowing requirements by the government have the "potential" to crowd out credit to the private sector, Subbarao said "such phenomenon will become more critical if there is fiscal slippage".
The market borrowings by state governments has also gone up attaining a critical mass alongside huge and rising market borrowing by the Centre and "therefore, there was need for coordinated debt management to avoid pressure on liquidity, and crowding out", he said.
He said RBI efforts need to be complemented by states by spreading of borrowing throughout the year and submitting tentative calendar in advance to the central bank.
The Governor also said fiscal consolidation at state level needs special attention with focus on expenditure restructuring. And also there is greater need to improve the tax-GDP ratio so that debt remains sustainable, he added.
Other issues discussed in deliberations were management of cash balances and market borrowings of the state governments for 2012-13, strengthening of Consolidated Sinking Fund, key risk to state finances from increasing losses of power distribution utilities and financial inclusion.
Payment of commission by state governments for encouraging electronic benefits transfers (EBT) through banks, incidents of frauds committed by multi-level marketing (MLM) companies, Protection of Interest of Depositors Act, receipt for government's banking business, and complaints relating to pension, were other issues discussed at the conference.