Reserve Bank of India Governor Bimal Jalan said on Friday that he expected no problems in managing the central government's local market borrowing programme, but admitted the fiscal deficit was a concern.

The government has a gross borrowing target of Rs 1.66 trillion in the new financial year starting in April, 20 per cent more than it will have borrowed this year.

"Yes, it (the fiscal deficit) is a problem both for the government and the Reserve Bank of India, but we have no problems in managing the govt borrowing programme," Bimal Jalan told reporters on the sidelines of a conference.

The central government has been borrowing more each year to bridge its yawning fiscal deficit, which it has forecast at 5.9 per cent of GDP this year, higher than its target of 5.3 per cent because it has raised less money from privatisations than it expected.

Next year's fiscal deficit target is 5.6 per cent of GDP.

The combined deficit of the federal and state governments is now estimated at about 10 per cent of GDP.

Asked whether state governments' plans to borrow from the market to prepay debt borrowed earlier at higher costs, Jalan said: "We will watch the market and take a view. We will try and ensure that there is no liquidity shortage."

He said advance tax outflows had caused the current tightness in cash supplies, but he said he didn't see any pressures in the medium term unless inflation rose, which he said he did not expect.