Govt likely to go for higher borrowings to tackle slowdown

Written by fe Bureau | Mumbai | Updated: May 31 2009, 07:09am hrs
Ahead of the Budget, Reserve Bank of India (RBI) governor D Subbarao on Saturday had a meeting with finance secretary Ashok Chawla to take stock of the government borrowing programme for 2009-10.

The meeting discussed the quantum of borrowing for the current fiscal which will be revealed during the upcoming Budget. The borrowing programme of the government will be much higher than projected earlier, as the Centre needs additional resources to arrest the economic slowdown and boost growth. Analysts say with the fiscal deficit rising, the government need to control its borrowing for the normal functioning of the fiscal system which would ensure low rates.

Earlier the governments borrowing in the interim budget was planned at a record Rs 2.41 trillion in the six months ending September.

The central bank had increased the quantum of past two bond auctions by 25%, from Rs 12,000 crore to Rs 15,000 crore , raising expectations that the government may increase the gross borrowings of Rs 3.62 trillion duirng 2009-10. The RBI will seek to manage the governments borrowing using all the tools at its disposal, Subbarao had said on May 22. The governments borrowing programme has already expanded rapidly, Subbarao had said. The large borrowing is going against the RBIs efforts in trying to maintain low interest rates.

Since last Friday, bond yields have gone up by 22 basis points and are up by 47 basis points in May. On Friday, the bond yields were seen near seven-week high as the economic data showed that the economy has performed better than expected in the March quarter. Moreover, the market also kept a close watch on the weekend review of the government borrowing plans. The 10-year benchmark paper closed at 6.70%, after touching an intra-day high of 6.72%, against 6.73% on Thursday. It had touched 6.74% on Thursday, which was its highest since 13 April.