Mumbai: The gross and net market borrowings of the Centre are expected to be lower than the budgeted amounts in 2003-04 even as Reserve Bank of India (RBI) has expressed concern over the fiscal situation.

"Adjusting for the inflow of States' repayment of high-cost loans to the Centre under the debt swap scheme, the gross and net borrowings are expected to be lower by 21 per cent and 33 per cent respectively than the budgeted amounts," RBI said in its "Report on Currency and Finance" released today (Jan 28, 2004).

During the first nine months of the current fiscal, the gross and net borrowings amounted to Rs 1,15,036 crore (budgeted Rs 1,66,230 crore) and Rs 77,319 crore respectively, excluding buyback of Rs 14,434 crore, it said.

This constituted 69.2 per cent of the budgeted gross market borrowings, the report said, adding of the amount raised, nearly 83 per cent was raised through dated securities and the balance through 364-day treasury Bills.

Declining trend in interest rates on market borrowings of State Governments continued during 2003-04. Upto December 31, interest rate ranged from 6.4 per cent to 5.78 per cent.

RBI report said notwithstanding modest successes in expenditure containment in the recent period, the slippages from budgetary projections underscores the deterioration in the quality of fiscal adjustment.

"The quality of fiscal deficit has worsened, with the revenue deficit having increased substantially indicating that a larger share of borrowed funds is pre-empted by consumption expenditure," it added.

RBI said the tax-GDP (gross domestic product) in the economy continues to be low.

As the revenue deficit was high, the burden of fiscal correction naturally fell on public investment, it said.

The fiscal constraint has not been binding as the private sector saving-investment surplus has continued to grow. This surplus has been funding public sector dis-savings.

"Hence, the high fiscal deficit has not put pressure on interest rates or for that matter, on monetary policy and current account balance," it added.

The report said major deficit indicators during FY-04 are expected to increase in absolute terms from the levels in the revised estimates for 2002-03 due to relatively higher growth in expenditure.

"However, in terms of GDP, all deficit indicators are projected to be lower in 2003-04 in anticipation of higher GDP growth, which has been revised to around seven per cent with a continued upward bias, unless there are unforeseen circumstances," it added.

The Central Government finances during the first eight months of the fiscal continued to be under pressure as the growth of aggregate expenditure, excluding the discharge of liabilities to National Small Savings Fund (NSSF), outpaced the growth in revenue receipts.

Including the expenditure on account of liabilities to NSSF, the growth in aggregate expenditure was as high as 24.7 per cent, it said.