Govt to borrow R40k crore more, deficit may hit 5.5%

Written by fe Bureau | New Delhi/Mumbai | Updated: Dec 31 2011, 09:09am hrs
The Reserve Bank of India (RBI) on Friday announced additional market borrowing of R40,000 crore by the government, which will take the gross borrowings for 2011-12 to R5.1 lakh crore from R4.17 lakh crore budgeted.

The extra borrowing could further drain the resources for the private sector, which, anyway, has cut down on investments, given the uncertain global scenario, moderate rise in domestic consumption and high interest rates. The announcement came on a day when official data said the Centres fiscal deficit for April-November crossed R3.53 lakh crore or 85.6% of the budget estimate of R4.12 lakh crore or 4.6% of the GDP for the full year. In September, the government had unveiled R52,800 crore of extra borrowing.

The fiscal slippage is because of lower-than-estimated tax revenues (attributable to the economic slowdown), low disinvestment proceeds and inadequate control on spending. The government may defer a substantial part of the subsidy payment due to oil marketing companies to next fiscal to stem the fiscal deficit for this year, but with Fridays borrowing decision, analysts pegged the deficit the government would budget for this year at around 5.5% of GDP.

The net market borrowing of the central government through the issue of dated securities in 2011-12 was estimated to be R3.43 lakh crore in the Budget 2011-12. Gross market borrowing was pegged at R4.17 lakh crore taking into account scheduled repayment of R74,128 crore. In addition, R15,000 crore was proposed to be financed through treasury bills.

Said, Parthasarathi Mukherjee, president-treasury, Axis Bank, This is what has already been factored in the market. Out of the R40,000 crore, R11,000 crore has already been raised and the remaining amount I think is not difficult for the market to take it in its stride. Having said that there will be marginal hardening of yields on Monday.The 10-year benchmark yield has shot up close to 30 basis points in two weeks on fears that the government might announce additional borrowing for 2011-12. The benchmark 10-year yield on Friday closed at 8.56%, up 3 basis points from its previous close. The revised borrowing was announced after the bond market had closed.

Separately, the government said Indias total external debt rose to $326.6 billion at the end of the second quarter from $317 billion in the first quarter. The government had said earlier this month that the external debt continued to remain within manageable limits.