Barclays Capital today said it sees Rs 40,000-crore shortfall in government securities supply next fiscal, which would force the Centre to overshoot its market borrowing target of Rs 3.43 lakh crore.
The bank also said this would considerably push up the fiscal deficit target of 4.6% that Finance Minister Pranab Mukherjee has set for the next fiscal.
According to the projected fiscal deficit of 4.6%, which is below market expectations, the government's net market borrowing during the next fiscal is pegged at Rs 3.43 lakh crore, which is also much below the expected borrowing of Rs 4.2 lakh crore.
"If all commercial banks absorb around Rs 2.5 lakh crore or 52% of the net supply of SLR-eligible government paper, and other market participants take in Rs 1.9 lakh crore, this would still result in a net demand shortfall of Rs 40,000 crore in FY12, provided the government sticks to its borrowing target," said the bank.
It further warned there is also a risk that the government's expenditure projections could be the source of upside surprises, leading to a higher fiscal deficit. This would also imply that the Centre's borrowing needs will be revised upwards. But we expect such revision in the second half, it said in a note.
Noting that any upward revision will result in higher supply in H2, the bank said it sees a risk that the government may look to finance a higher deficit via one-off revenue sources such as offering a tax amnesty scheme.
"Even with a lower headline deficit, we estimate the net supply of G-sec eligible for banks SLR calculations at Rs 4.83 lakh crore for FY12. This includes Rs 3.43 lakh crore of Central government securities (G-sec), Rs 1.25 lakh crore of state development loans (SDLs) and Rs 15,000 crore of Treasury Bills," it said.