NEW DELHI: Finance Minister Pranab Mukherjee today allayed apprehensions that the high borrowing of the government, pegged at about Rs 4 lakh crore to fund its widening fiscal deficit, will dry up resources for the private sector.

Mukherjee said: "The government borrowing will be managed in such a manner that there is no disruption in the market in favour of government borrowings and starving of the private sector."

Mukherjee was talking to reporters after the customary post-Budget interaction with the board of Reserve Bank of India (RBI).

As per Budget estimate, net borrowing by the government for the current fiscal is pegged at a whopping Rs 3,97,957.47 crore, projected at 6.8% of GDP.

"I wanted to reassure that there is no inherent contradiction between the monetary policy (of RBI) and fiscal policy (of the government). We are working in close co-operation (with the RBI), we have done it in the worst period of the present crisis," he said.

RBI has always managed government borrowing in a smooth manner, he said, adding the borrowing target of the government was raised as it has provided three stimulus packages hitting its revenue and raising expenditure thus widening the fiscal deficit.

Explaining the rationale for the high borrowing, Mukherjee said: "I choose to come back to growth trajectory, and private investment cannot be expected to meet the full requirement in immediate time... that is why it was decided to step up public expenditure and it has to depend heavily on borrowing."

High level of borrowings projected in the Budget has raised fears that it would crowd out or leave little resources for the private sector besides raising interest rates, which will increase the borrowing costs for the industry. Asked whether there could be further moderation of interest rates, the Finance Minister said appropriate action would be taken as and when the situation arises.

"These exercises are done constantly, and you just cannot expect some sort of omnibus reply... as and when the situation demands, we adjust," Mukherjee said.