The government will borrow from markets 31.5 per cent more than the Budget estimates in the second half of the ongoing 2011-12, but the finance ministry still feels that it will not crowd out private sector requirement for funds, as the October-March period will also see higher spending than the first half.
Over 60 per cent of these borrowings are slated to be mopped up in the festival season, but the finance ministry says it will not disturb resources for the industry since liquidity is currently not in shortage — as could be seen from the repo window of the Reserve Bank of India (RBI).
The government has already decided to go for additional Rs 52,800 crore of borrowings in the second half over earlier estimates of Rs 1,67,200 crore.
Industry, including real-estate players and consultants, do not share the finance ministry’s views. But they have some takers among economists.
The government has decided to up its markets borrowings in the second half, since it gets less funds from small savings and has other cash problems.
The indicative calendar given by the RBI for market borrowings reveals that the government will mop up Rs 1,33,000 crore in the third quarter, compared to Rs 87,000 crore in the fourth quarter. It has already announced Rs 15,000 crore of borrowing. “This is so because we also need funds in the third quarter,” explained a finance ministry official.
However, he did not agree to the views that it would leave less resources for the private sector which needs funds in the festival seasons. “We spend more in the second half than the first half. So, whatever funds we collect from markets will be spent much faster. That money will also goes to the system,” he said.
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Till this August, the government has spent Rs 4.72 lakh crore, constituting 37.5 per cent of Rs 12.58 lakh crore targeted for the entire fiscal.
The RBI’s repo windows, he added, does not corroborate the views that liquidity is in shortage in the markets. Banks have borrowed Rs 45,450 crore through daily repo window of the RBI, while the central bank has absorbed much higher amount of Rs 63,640 crore in the first week of October.
However, Ficci Secretary General Rajiv Kumar said, the government was borrowing more in the busy season. “October ot December are months when the industry requires more funds, as it stocks sugarcane in these months among other needs,” he added.
The real estate sector also said that they would bear the pinch of the government’s more borrowings from the market. Anshuman Magazine, chairman and managing director, CB Richard Ellis, said, “The government’s additional borrowings will have an indirect impact on the real estate sector. Already struggling with high interest rates and liquidity crunch, the government mopping up liquidity may act as a double whammy for the realty sector.”
R R Singh, director-general, National Real Estate Developement Council (NAREDCO), said the government’s decision to go for additional borrowings would further squeeze liquidity out from the system. “The real estate sector is already struggling with the fund crunch. The government’s move will only magnify the problems. The interest rates will go further up.”
However, economists seem to be having views closer to the government.
D K Joshi, chief economist with Crisil, said the private sector’s demand for credit had been slow; therefore, the government's additional borrowings would not lead to a crowding out effect. “Due to the RBI’s rate hikes, the economy is slowing, and there is not much demand for credit.”
Agreed Madan Sabnavis, chief economist, Care Ratings: “The government’s borrowings will not lead to crowding out, as private sector is not borrowing. Secondly, it is in line with RBI’s action of sucking up liquidity. High interst rates have dissuaded the private sector from borrowing, anyway.”
In the first half of this fiscal (April-September), the government has borrowed Rs 2.5 lakh crore through dated securities. Now, in the October-March period, the scheduled borrowing would be Rs 2.2 lakh-crore.