In a bid to tackle the slowdown in the economy and the ballooning fiscal deficit, the government borrowings have been increased by a substantial Rs 90,000 crore to Rs 4, 51, 000 crore, thereby leading to a hike in its expenditure on the interest payments on the Budget Estimates (BE) for 2009-10.

This has led to a rise on the interest on internal debt, namely market loans, to rise by 30% to Rs 1, 40,697 crore on the budget estimates (BE) for 2009-10.

As per the Budget document released by the government, the expenditure on the BE, the total expenditure on interest payments have witnessed a rise of 17% to Rs 2, 25,510 crore, as against Rs 1, 92,694 crore on the revised estimates (RE) for 2008-09.

Essentially, the increase in the BE in 2009-10 is mainly on account of larger requirement for interest on market loans, discount on treasury bills, bonds for SBI rights, special securities to oil marketing companies and fertilizer companies, state provident funds, insurance and pension funds.

Now, interest payments on special bonds to oil companies have witnessed a 90% jump in the BE for 2009-10 to Rs 10,511 crore as against Rs 5,529 crore on the RE for 2008-09.

At the same time, the estimates for special bonds issued to fertilizer companies has also seen a rapid increased by more than double to Rs 1,956 crore in 2009-10 from Rs 609 crore in 2008-09. ?With the government borrowings increasing, the interest payment on various bonds issued by the government has to go up. Thus, interest costs on special bonds issued to fertilizer companies and oil companies will go up as coupon payments on bonds will be made,? said Golak C Nath, vice-president and economic advisor with Clearing Corporation of India (CCIL).

The RBI has already sold Rs 1, 62,000 crore in the first quarter of 2009-10, will flood the market with additional Rs 2, 89,000 crore, issuing Rs 4, 51,000 crore of dated securities for 2009-10.

While the central government is set to borrow Rs 4,51,000 crore, states governments, already facing fiscal slippage, are likely to borrow Rs 1,61,000 crore, taking the cumulative sovereign debt issuance for dated securities to at least Rs 6,12,000 crore, said Edelweiss in a report.

A provision of Rs 2,400 crore is being made in the BE 2009-10 for payment of premium on buyback of securities under the active debt consolidation scheme, the expenditure document noted. The finance ministry and the central bank officials would soon meet to finalise a new borrowing plan schedule.

The government plans to borrow about Rs 4, 50,000 crore from the market during 2009-10, a rise of about 50% over what it borrowed a year ago. The fiscal deficit for 2009-10 is pegged at 6.8% of the GDP.