No more easy money for state governments: Pranab

The borrowing limit for state governments will not be raised beyond the current 4 per cent of their gross domestic product for the current financial year, finance minister Pranab Mukherjee said on Wednesday.

"It has already been decided," he said when asked by newspersons in New Delhi if the government was considering raising states' borrowing limits. The limits had already been raised by a total of 100 basis points, he pointed out.

"It is expected that once the global economy begins to recover, state governments would reaffirm their commitment to fiscal responsibility and be back onto the path of fiscal consolidation," Mukherjee said. The consolidated fiscal position of state governments has been improving over the past years, he added.

Mukherjee also backed the Reserve Bank of India's monetary policies, saying they were in line with the government's thinking. However he disagreed with the central bank's six per cent growth forecast for the current fiscal year, saying it was too conservative.

In its mid-term review of the annual policy statement, the central bank kept almost all key interest rates unchanged, apart from hiking the statutory liquidity ratio (SLR), the portion of deposits that banks are obliged to park in government bonds, by one percentage point to 25 per cent.

"RBI always makes very hard and conservative assessment. On GDP growth I am inclined to accept the figure of the prime minister's economic advisory council, headed by C Ranagarajan, which is (GDP growth) from 6.5 to 6.75 per cent," Mukherjee said.