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Heavy borrowing by the Indian government will elbow out some private firms who wanted to raise funds, and an economic slowdown is not over despite some signs of improvement, Finance Minister Pranab Mukherjee said on Tuesday. A day after unveiling a budget that disappointed markets, Mukherjee told corporate leaders the government did not want to make it hard for the private sector to raise money by selling debt, and said it would look at ways to boost private investment.
"I can assure that the intention is not to crowd out the private sector from the markets," Mukherjee said. The government plans to run a deficit equal to 6.8 percent of gross domestic product in 2009/10, the biggest in 16 years, and plans to borrow a record gross 4.51 trillion rupees ($93 billion) from the market, a quarter more than an initial estimate.
The government has ramped up spending to counter a sharp slowdown in growth, and Mukherjee said there would be a return to fiscal consolidation after the global economy recovers. "We must come back to growth path as early as possible," Mukherjee said. The government forecast the deficit would narrow to 5.5 percent of GDP in 2010/11 and 4 percent in 2011/2012/. The economy grew 6.7 percent in 2008/09, sharply slower than growth of 9 percent or more in the previous three years.

Copyright Reuters, 2009

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