Dr Jalan, governor of the Reserve Bank of India, said here today that there are several areas of concern in respect of current monetary trends in the economy.

"Looking beyond the current year, a significant reduction in fiscal deficit over the next 2 to 3 years is now a high national priority. Beyond a point, it is simply not feasible for banks and financial institutions to increase the share of government securities in their overall asset portfolio without affecting their own viability - and indeed the viability of the productive sectors of the economy," Jalan said today.

The Union Budget for 1998-99 has projected a fiscal deficit of 5.6 per cent of GDP. Accordingly, the gross borrowing requirementof the Union government for the year is placed at Rs.79,376 crore and net borrowing requirements were placed at Rs.48,326 crore. The corresponding actuals for 1997-98 were Rs.59,637 crore and Rs.40,494 crore, respectively. The borrowing requirements estimated for 1998-99 are undoubtedly high and account for a substantial portion of the incremental deposits in the banking system.

Despite some additional pressures on the fiscal position, the government has announced its firm intention to contain the fiscal deficit, and its borrowing requirements, to the levels announced in the Budget for 1998-99.

"This is a welcome development, as the importance of containing fiscal deficit to budgeted levels in the current year cannot be over-emphasised. The current inflation rate is a matter of concern and the outlook for industrial growth continues to be uncertain," he said.

"The external environment is also highly unfavourable. In this situation, any increase in the fiscal deficit during the year would put furtherpressure on the outlook for medium and long-term interest rates, besides adding to the already high rate of monetary growth," Jalan said.

On growth of GDP, Jalan said: "Allowing for the turnaround in agriculture and some recovery in industrial production, the best estimate for GDP growth for 1998-99 is in the region of 6 per cent (as compared with 5.1 per cent in 1997-98)."

"Monsoon has been good this year, and agriculture will bounce back from a negative growth in 1997-98 to a positive one in 1998-99. However, at present, there is some uncertainty about the extent of likely increase in agricultural production during the year as some parts of the country have been affected by floods and late rains."

"Thus, a rate of growth of 3 per cent in agricultural production over the depressed level of 1997-98 seems a reasonable estimate at this point of time," Jalan said.