New Delhi: Former Reserve Bank Governor C. Rangarajan has said the massive borrowing programme of the government would have implications for the corporate world in the next fiscal and might lead to “crowding out” of capital from the market.
The government has proposed to borrow Rs4 lakh crore during the current fiscal.
Rangarajan, who was delivering a lecture on “International financial crisis and its impact on India’ to members of parliament on Thursday, also said that interest rates would go up by the end of the year.
“Interest rates will harden by the end of the year,” he said.
Rangarajan, now a member of the Rajya Sabha, said: “as long as the private demand is not picking up, the government will be able to borrow at the same rate.”
He said the economy was likely to show signs of definite improvement in the second half of current fiscal which might lead to a pick-up in demand for credit by the industry.
He expressed confidence that the country would clock an economic growth of 6.5 to 6.7% in 2009-10 which could go up to 7-8% during 2010-11. “We would not be able to go back to 9% GDP growth rate, unless the world economy recovers.”