Tuesday, June 28 2005 17:08 Hrs (IST) - World Time -

New Delhi: Encouraged by the strong economic fundamentals, Finance Minister P Chidambaram today (Jun 28, 2005) said inflation was under control and expected interest rates to remain benign in the wake of less than expected borrowings this fiscal.

"The economy is in a resilient mode and inflation is under control...To achieve 7.5 per cent growth investment has to be increased from 26.3 per cent of GDP to 31.13 per cent by 2008-09," he told reporters after his presentation to the National Development Council.

"We should continue with fiscal consolidation to maintain benign inflation and interest rate scenario to promote private investment," he said admitting that planned investments fell short of the MTA targets by 50 per cent in the first three years of the Tenth Plan.

"We have to make up the balance 50 per cent in the remaining two years, that is 2005-06 and 2006-07, which is a tall order," he said.

Stressing on the need to contain unproductive expenditure and augment public investment, he said chronically loss-making PSUs should be closed down or sold and subsidies needed to be rationalised to reduce inefficiencies for better targeting.

Touching upon the borrowing, he said, "As per assessment of Finance Ministry and Reserve Bank, states will borrow less than indicated." States were slated to mop up Rs 23,000 crore this fiscal but would end up borrowing less because of increase in grants and allocation from the central pool of taxes, as recommended by Twelfth Finance Commission.