The Reserve Bank of India has once again made a pitch for bringing down the small savings rate.

In its annual report (2002-03), the central bank said the money mobilised through small savings and provident funds have been at higher rate of interest than the market borrowings through dated securities.

The rate of interest on money mobilised through small savings and PFs were at 11.08 per cent, while through market borrowings it is at 10.69 per cent.

The interest rates on borrowings through small savings and PFs have shown a dip of 17 basis point (100 basis points is one per cent) from 11.25 per cent in 2001-02.

In contrast, interest rates on market borrowings were down sharply by 63 basis points from 11.32 per cent.

The RBI said: "Though interest rates have converged since 1990s, the cost of small savings continue to be higher than that of market borrowings considering the tax concessions available on these funds."

The central bank also pointed out that small savings receipt will continue to be a major source of financing the states fiscal deficit and account for 58 per cent of gross fiscal deficit in 2003-04.

Also loans from the centre and state provident fund are anticipated to finance 10.7 per cent and 7 per cent of the GFD. The share of market borrowings is budgeted to decline to 12.4 per cent from 19.9 per cent in 2002-03.

The RBI annual report also referred to another 'disquieting feature' -- the high debt discharge obligations of the government.

The central bank also pointed out that debt servicing on an average accounted for more than 70 per cent of the gross market borrowings of the Centre during 1990-91 to 2002-03.

This is even as the average maturity of the dated securities in the recent years have elongated.

The central bank has said the growing size of contingent liabilities has implications for the sustainability of government finances.