Govt to keep borrowing target intact

Written by Anto Antony | New Delhi | Updated: Jun 1 2010, 01:53am hrs
India will keep its record borrowing target for the current fiscal year unchanged despite the windfall gains from sale of 3G airwaves and broadband wireless spectrum. The non-tax revenue from 3G spectrum auction will be diverted to under-funded Plan programmes and for funding subsidies, a senior finance ministry official said. With government keeping its gross borrowing targets intact, any relief for private sector borrowers in availability or terms of credit is unlikely.

Under-funded Plan programmes will need close to Rs 25,000 crore in addition to the budgeted amount in the fiscal year 20010-11 and one cannot rule out the risk of subsidies (especially fuel subsidies) over-shooting the allocations, the official told FE.

A snap poll among dealers in bond markets by FE had showed that markets were expecting a cut in gross borrowing in the second half of the fiscal. While the budget provisioned for Rs 35,000-crore inflow from 3G auction, the government managed to raise close to Rs 68,000 crore, triggering speculations about a cut in the gross borrowing figures. Jittery markets that can make the ambitious disinvestment target of Rs 40,000 crore elusive is another reason for the ministrys cautious approach.

Finance secretary Ashok Chawla had earlier said that the higher-than-expected income from spectrum auction had the potential to reduce government borrowings but a final decision would depend on expenditure requirements.

The government plans to narrow the fiscal gap to 5.5% of gross domestic product this year from 6.8% of GDP in the previous year, the sharpest cut in 19 years. Finance minister announced in budget a record borrowing of Rs 4.57 lakh crore in the current fiscal year that started in April.

Plan panel member Saumitra Chaudhuri confirmed that several Plan programmes will need more funding in the fiscal year. Any higher than expected tax mop-up in the second half of the fiscal may help in cutting the deficit figures, Chaudhuri added. Another roll back in the stimulus measures and higher than expected growth can push the revenue collection higher.

Some economists expect the government to continue the remainder fiscal stimulus measures through the year as the eurozone crisis poses a risk to Indias growth projections. Spreading of Greece crisis to larger countries in the zone will accelerate outflow of foreign institutional investors money from India . Foreign institutional investor were net sellers by Rs 11,000 crore in current month. Exports to euro zone accounting for more than 20% of Indias trade will also suffer from the crisis .

Manoj Vohra, director at the economist intelligence unit, said that the investors and rating agencies will not raise a red flag if India doesnt cut the deficit further in the year. With most of the countries in the world living with high deficits, as long as we have a serious plan in place to narrow our fiscal gap there is no need for alarm, said Vohra and added, the windfall gains should be used to step up expenditure.

Countrys chief statistician Pronab Sen also maintained that the gains from sale of airwaves may be used to fund governments policy priorities that is already chalked out. He pointed out that in administered fuel price scenario if the crude oil prices sustain above $75 per barrel the subsidy allocations will have to increased. The sharp depreciation of rupee against US dollar will also increase the subsidy burden on fuels.

Yields on benchmark ten year bonds closed at 7.55% last week. Hardening of US treasury yields and concerns over domestic liquidity situations are likely to push up the yields on Monday morning.