Borrowings won't impact rates, says Rakesh Mohan

He, however, added that the government could end up borrowing less from the market than the Budget projection for 2005-06.

"There is enough liquidity in the system," Mohan told reporters on the sidelines of a Confederation of Indian Industry seminar on the Budget for 2005-06. "One does not see a problem in borrowing," he added.

"Given the liquidity, one does not see that kind of pressure on interest rate (due to higher market borrowing)," Mohan said.

When asked whether the government could borrow less than the Budget projection, he said, "It may happen (borrowing less than budgeted). It happened last year (2004-05)."

The government's gross market borrowing through dated securities in 2005-06 - excluding that under the Market Stabilisation Scheme - is pegged at Rs 1.395 trillion.

Finance Minister P Chidambaram had said in a television interview yesterday that the government had borrowed less than what was targeted in the current fiscal year, and that it "may end up borrowing less than the Budget target in 2005-06".

Mohan told reporters that the average liquidity in the system this year is to the tune of Rs 850-1,000 billion.

"There has been that kind of excess liquidity in the system. One does not see any kind of pressure on interest rate in the system (this year)," he said.

Mohan said the borrowing by the special purpose vehicle for infrastructure will not affect the government's fiscal deficit because it will only be a contingent liability.

The Budget for 2005-06 proposed setting up of an SPV to fund viable long-term infrastructure projects. The government has set a ceiling of Rs 10,000 crore for borrowing by the SPV in 05-06 to fund core sector projects.

"The government has put a Rs 10,000-crore ceiling on SPV borrowing mainly on account of stipulation under the Fiscal Responsibility and Budget Management Act with regard to contingent liability of the central government," Mohan said.

The borrowing by the SPV will be 100 per cent guaranteed by the central government and the SPV will raise resources from the domestic market, he added.