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Government debt way past target levels - Views on News from Equitymaster
 
 
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  • Jan 19, 2000

    Government debt way past target levels

    According to newspaper reports, the government of India is likely to surpass its borrowings target for FY00 by a wide margin. The Reserve Bank of India has announced an issue of Rs 30 bn government paper. With this, the government's gross borrowings will touch Rs 921.3 bn as against the targeted Rs 840.1 bn.

    The sharp rise in government borrowings is a direct fallout of the burgeoning fiscal deficit. Despite the economy gaining momentum (the GDP grew by 6% in 2QFY00), the government's revenue collections continue to be way below target. Then there is the expenditure on the Kargil conflict that further worsened the fiscal situation. Added to this is a failed attempt to raise Rs 100 bn by divesting the government's stake in various public sector units.

    The government's persistent recourse to the debt markets to fund deficits could trigger off a hardening of interest rates as corporate and government compete to meet their funding requirements. This would not augur well for the economy, as higher rates would lead to slower growth in investment activity, which is a must for a sustained economic recovery.

    The government has targeted a fiscal deficit of Rs 1,050 bn for the fiscal year 2000. However, this is likely to be exceeded by a wide margin. Consequently, it has been estimated that the government would exceed its borrowing target by approximately Rs 200 bn.

     

     

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