Amid ballooning fiscal deficit, the government on Tuesday categorically said that it has 'no intention' to monetise its debt, which implies that it will not directly borrow from the Reserve Bank of India.
"Government has no intentions of monetising its debt," finance minister Pranab Mukherjee told Lok Sabha in his reply to the debate on Union Budget.
He said during the first half of 2009-10, the government plans to borrow Rs 2.41 lakh crore (Rs 2.41 trillion) from the market and RBI is supporting it through its open market operations, through which the central bank releases or sucks money from the market against government securities.
"OMO should not be confused with monetisation of debt," Mukherjee said. Monetisation of the government debt would be when RBI directly subscribes to the government paper.
As fiscal deficit is projected to be at 6.8 per cent of gross domestic product this fiscal and the government has pegged its market borrowings at around Rs 4 lakh crore (Rs 4 trillion) for 2009-10.
Mukherjee also dispelled fears that higher government borrowings would leave little resources for the private sector and would increase cost of borrowings, as also apprehensions that the private sector will be elbowed out due to this.
He said it is possible for the Centre and the RBI to work in tandem to enable both government and private sector meet their borrowing requirements from the market.