The finance ministry on Monday contested the Reserve Bank of India's warning on mounting fiscal deficit, asserting that it would be reined in within 5.6 per cent of GDP during 2003-04.

"We take RBI's concern in the right spirit. But there is nothing that leads us to believe that the fiscal deficit target (5.6 per cent of GDP) will be exceeded," chief economic advisor Ashok Lahiri said.

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He said the fiscal deficit during the first half of this fiscal was relatively higher due to 'under-performance' of excise collection and budgeting of petroleum subsidy worth Rs 4,000 crore (Rs 40 billion).

When pointed out that fiscal deficit has touched over 52 per cent of the budgeted amount, Lahiri said: "I am not apologetic as the five-year average has been 51.9 per cent. It is, however, true that it was comparatively higher than last fiscal's figure of 42.7 per cent."

The ministry, however, welcomed RBI's decision to hike the GDP projection by 0.5 per cent to 6.5-7 per cent, saying that this indicated the upswing in the economy.

Lahiri dismissed the view that RBI's not cutting bank rate had halted the movement towards softer interest regime.

"What is going to happen in the global economy is not known. RBI wanted to be cautious," he said, adding that the economy would continue to grow without the rate cut.

"If you think that rate cut is for pump-priming the economy, it is a restrictive view," he added.

Lahiri said RBI has taken the right decision to energise growth by ensuring higher credit flow to agriculture and SSI sector.

Banking secretary N S Sisodia said credit offtake was picking up as witnessed by the loan sanctions of financial institutions and banks.

Agreeing with the RBI's move to maintain bank rate at 6.0 per cent, he said: "We are with him. Rate cuts should wait for the need of the economy and not for particular date like Credit Policy."

Lahiri said the credit policy has been well received by the stock market, with Sensex crossing the 5,000 mark.

However, he added that "we don't jump with joy when the market goes up, neither do we lose sleep when there is minor correction. Moreover, SEBI and DCA are monitoring the market so that there is no market abuse."