Mumbai: The government’s large borrowing could crowd out credit to the private sector, Duvvuri Subbarao, governor of the Reserve Bank of India (RBI) said on Tuesday.
The situation would become more critical if there is fiscal slippage, he said at a conference of state finance secretaries in Mumbai.
Fiscal consolidation at the state level also needs special attention with focus on expenditure restructuring, and there is greater need to improve the tax-GDP (gross domestic product) ratio, he added.
“The market borrowings by state governments has also gone up attaining a critical mass alongside huge and rising market borrowing by the centre,” Subbarao said.
“Therefore, there was need for co-ordinated debt management to avoid pressure on liquidity, and crowding out.”
Gross market borrowing in 2012-13 is seen at Rs5.7 trillion, the government said in its annual budget for the fiscal year ending March 2013. The fiscal deficit for the year is seen at 5.1% of the GDP.