RBI to provide ample liquidity: Chidambaram | india | Hindustan Times
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RBI to provide ample liquidity: Chidambaram

Indian Govt is committed to reining in its fiscal deficit as economic growth prospects remain bright.

india Updated: Mar 05, 2006 12:41 IST

Indian government is committed to reining in its fiscal deficit as economic growth prospects remain bright, Finance Minister Palaniappan Chidambaram said on Saturday.

"I told the RBI (Reserve Bank of India) board, we are committed to the fiscal correction path. Next year we will be adhering to the FRBM Act," the minister told reporters, referring to a law binding the government to cut its fiscal deficit by 0.3 per cent per year.

The budget presented on last Tuesday aims to narrow the federal fiscal deficit to 3.8 per cent of gross domestic product in the fiscal year beginning April from an expected 4.1 per cent for the year ending March 31.

The UPAgovernment had pressed the pause button on taking measures to tackle the deficit in the year ending March 2006. But it has announced its intention to stick to the plan in the next year.

The coalition government aims to boost economic growth in coming years to 10 per cent from an estimated 8.1 per cent this fiscal year, saying growth is the key to helping 260 million Indians living in poverty.

Chidambaram pledged in the budget to boost spending on health, education and rural infrastructure, describing growth as "the best antidote to poverty."

On Saturday, Chidambaram said he had asked the central bank to ensure ample liquidity to maintain the strong growth.

"I requested the RBI board that there should be ample liquidity and nothing should be done to disturb the growth story," he said. "I was assured that the RBI will provide ample liquidity to all productive sectors."

Rising lending to companies by Indian banks has led to a cash squeeze in the banking system, forcing many banks to pare holdings in government bonds.

Chidambaram said the central bank had also supported the government's plan to provide crop loans to farmers at 7 per cent.

"We discussed the implication of the budget announcement of providing crop loans at 7 per cent. The RBI board said it fully supports the move," he said.

Agriculture's contribution to gross domestic product has fallen for years as services have grown. It now contributes about a fifth of GDP.

But with almost 60 per cent of India's billion-plus people living off the land, farmers are a key driver of consumption.