Govt to lower borrowing costs, seeks higher growth

By Rajkumar Ray (Reuters) - The government may take more steps to make cheaper and adequate funds available to the private sector, while ensuring the government's record-high borrowing plan proceeds smoothly, the finance minister said on Saturday.

Pranab Mukherjee said the country aims to return to the higher growth of past years, for which the government has outlined a spending plan of 10 trillion rupees ($205 billion) for the year to March 2010, largely funded through debt.

Markets were spooked after the government on Monday announced a 4.51-trillion-rupee borrowing plan for 2009/10, 14 percent higher than a Reuters poll forecast and about a quarter higher than cited in an interim budget in February.

Analysts and industry groups are worried the government's heavy borrowing would crowd out private firms and undermine the impact of the central bank's rate cuts since October.

"But we will manage it with the cooperation and support and competence of the RBI (Reserve Bank of India) and there should not be any apprehension that the private sector would be crowded out," Mukherjee said after meeting central bank board members.

"We will meet the requirements of the private sector from the market and government's borrowing will also be managed in such a manner that there is no disruption in the market in favour of the government and starving of the private sector."

HIGH BORROWING COSTS

High borrowing costs and then a global financial crisis have hit Asia's third largest economy harder than expected with the growth rate moderating to 6.7 percent in 2008/09, from 9 percent or more in the previous three years.