Delivering a special lecture jointly organised by the Madabhushi Ananthasayanam Institute of Public Affairs and the Statistics, Economics and Commerce Departments of Sri Venkateshwara University at Tirupati on Friday, RBI deputy governor YV Reddy said that such a deficit could be met by anticipated net capital flows.

The Reserve Bank has also made it clear that it expects any shortfall in portfolio investments and external commercial borrowings to be made good by NRI flows through the Resurgent India Bonds.

However, the central bank expects the real GDP (gross domestic products) to grow by at least 6 per cent during 1998-99. This is higher than theCentre for Monitoring Indian Economy's (CMIE) GDP growth estimate of 4.5-5.0 per cent in 1998-99.

"With even a very conservative estimate that agriculture, with a weight of 24.4 per cent, would grow by only 3.5 per cent, industry with a share of 27 per cent in real GDP records a growth of just five per cent and growth in services will be a mere eight per cent, real GDP will grow by at least six per cent during 1998-99," said Reddy. "Clearly, the pessimism expressed by some that real GDP would grow only by 4.5-5.0 per cent during 1998-99 is unwarranted," he added.

Speaking about the fiscal deficit, the Reserve Bank governor has said that the gross fiscal deficit (GFD) projection of 5.6 per cent will depend entirely on privatisation receipts. "If there is good progress in this regard, receipts may exceed the estimates significantly. Coupled with some control over expenditure, it should be possible to ensure that the fiscal deficit is well within the budgeted level," Reddy said. He, however, hinted that thismight not be possible. "On privitisation receipts, pessimists would look at the recent track record and the state of stock markets," he said.

Reddy predicted that there would be less pressure on interest rates in the second half despite the possible pickup in demand in the busy season. He said: "...the genuine credit requirements of productive activities can be met by the significant accretions that are taking place in bank deposits".

The Reserve Bank deputy governor expressed concern about the rise in prices in the past few weeks. "Indeed price rises in recent weeks have been a matter of concern. They seem to be largely a product of seasonal factors. The influence of fruit and vegetables on the inflation rate has been high. Once the seasonal factors peter out, it is hoped that the inflation rate will decelerate, though we cannot rule out transmission of price rise to primary articles to others," Reddy admitted.