Government’s additional borrowing not to hamper private sector requirements

10 Oct 2011 Evaluate

The government’s decision to up its markets borrowings in the second half, since it gets less funds from small savings and has other cash problems might have led the economist give a rethink on the fiscal deficit but the finance ministry still feels that it will not crowd out private sector requirement for funds, as the October-March period will also see higher spending than the first half.

The government has already decided to go for additional Rs 52,800 crore of borrowings in the second half over earlier estimates of Rs 1,67,200 crore. It will borrow from markets 31.5 per cent more than the Budget estimates in the second half of the ongoing 2011-12. However, over 60 per cent of these borrowings are slated to be mopped up in the festival season, but the finance ministry has put its confidence that governments additional borrowing will not disturb resources for the industry as liquidity remains sufficient, citing the repo window of the Reserve Bank of India (RBI). Banks have borrowed Rs 45,450 crore through daily repo window of the RBI, while the central bank has absorbed much higher amount of Rs 63,640 crore in the first week of October. The indicative calendar given by the RBI for market borrowings reveals that the government will mop up Rs 1,33,000 crore in the third quarter, compared to Rs 87,000 crore in the fourth quarter.

Though the situation don’t seems that grave, going with the data of RBI but Industry, including real-estate players and consultants, do not share the finance ministry’s views and have expressed their concerns. Especially, the real estate sector which has long been struggling with high interest rates and liquidity crunch. Ficci Secretary General Rajiv Kumar said, the government was borrowing more in the busy season. “October to December are months when the industry requires more funds, as it stocks sugarcane in these months among other needs,” he added.

In order to meet its expenditure in the second half of the fiscal, the government in consultation with the Reserve Bank has recently decided to borrow Rs 52,800 crore from the market, over and above Rs 4.17 lakh crore estimated earlier. The government proposes to bring fiscal deficit to 4.6% of the Gross Domestic Product (GDP) during 2011-12 from 5.1% in the previous fiscal.

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