A day after the government said it would borrow Rs 11,000 crore earlier than scheduled, the finance ministry added that this would not be enough.
It would, said the ministry, need to raise more from the market before March than it had planned. The ministry did not specify the amount of additional borrowings.
The need for additional borrowings arises because of the government’s burgeoning expenditure in the wake of a huge subsidy bill and expected shortfall in receipts.
The ministry admitted the fiscal deficit target of 4.6 per cent of gross domestic product (GDP) might overshoot by a significant margin, as disinvestment and tax collections were expected to fall short of estimates.
“When fiscal deficit is increasing, there is no option but to borrow more… The government does not want to crowd out the private sector investment but certain moderate borrowings will be done,” a senior finance ministry official said.
The government had budgeted Rs 4.17 lakh crore of borrowings for 2011-12. In September, it said it would borrow Rs 52,800 crore more to meet expenditure requirements in the second half of the year, taking the total borrowing to Rs 4.7 lakh crore. This was because of a lower cash balance and dip in collections from small savings schemes.
| CHALLENGES |
| * Subsidies may hike expenditure by Rs 1 lakh crore over the earmarked Rs 1.34 lakh crore. |
| * Tax receipts in eight months at only 52% of estimate. |
| * Disinvestment proceeds at Rs 1,144 cr, against projected Rs 40,000 cr. |
| * Dim outlook on revenue receipts. |
| * Slowing growth, rising crude oil prices, and high interest rates are challenges. |
| * Fiscal deficit at 74% of budget estimate by Oct; could touch 6% of GDP by end of financial year. |
The ministry yesterday modified its borrowing calendar and said it would borrow Rs 15,000 crore on December 30. A part of this was due to the cancellation of auction of a government stock of Rs 4,000 crore on November 11, while the remaining, Rs 11,000 crore, is to meet its emerging cash requirement.
The ministry clarified Rs 11,000 crore was just an advancement of the borrowing schedule and not an additional borrowing as speculated in certain quarters.
Talks on the government overshooting market borrowing plan, following unscheduled auction of government bonds, yesterday led to yields opening eight basis points higher than the previous day’s close.
However, yields eased through the rest of the day on hopes that the Reserve Bank of India would offset the impact by infusing liquidity via open market operations.
If the government goes for additional market borrowing, yields should open higher tomorrow, leading to mark-to-market losses for banks, said Jagannadham Thunuguntla, head of research, SMC Global Securities Ltd. “It’s negative news for banks, whose treasury income would come down,” he said.
Fiscal deficit at the end of October reached 74 per cent of the Budget estimate (BE) for 2011-12 and analysts say it could be over six per cent by the end of this financial year. Tax receipts in the first eight months were only about 52 per cent of the BE. Proceeds from disinvestment were only Rs 1,144 crore, against the projected Rs 40,000 crore.
On the expenditure side, the government’s subsidy bill on petroleum, food and fertiliser is likely to go up by Rs 1 lakh crore over the earmarked Rs 1.34 lakh crore. The government has already gone for Rs 76,000 crore of net extra expenditure through two supplementary demands for grants.
Meanwhile, finance minister Pranab Mukherjee said at a consultative committee meeting yesterday that necessary instructions had been issued to all ministries and departments to adhere to their expenditure ceilings.
