About-turn in government borrowings seen

For the last five years, the cost of borrowings by the central government may have been coming down, but the wheel may just make a turnabout this year.

Interest rates on the ten-year government security hardened by 100 basis points since the start of this fiscal. One basis point is equal to one hundredth of a percentage.

The soft interest rate regime had facilitated the raising of resources at relatively low cost. In recent years, the weighted average interest rate on the Centre's market borrowings by way of dated securities had declined steadily.

From the highs of over 13 per cent in 1999, the cost of government's borrowing has steadily come down to 10.69 per cent in 2002-03 and to 9.86 per cent in 2003-04, said the RBI annual report 2003-04.

The cost of resources mobilized through small savings and provident funds has also declined as a consequence of the efforts to align interest rates on various small savings instruments with the market interest rates.

The cost of borrowings through small savings reduced from 11.50 per cent in 1999-2000 to 10.88 per cent in 2003-04. Borrowings through provident funds fell more drastically from 11.80 per cent in 1999-2000 to 7.66 per cent in 2003-04.

The gross fiscal deficit was higher by 8 per cent as against a decline of 2.4 per cent in the previous year.

The effective cost to the government in respect of non-marketable borrowings such as small savings and provident funds would be higher if various tax exemptions available on these instruments are taken into account, said the RBI annual report.