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Government to overshoot borrowing target for FY2000 - Views on News from Equitymaster
 
 
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  • Dec 6, 1999

    Government to overshoot borrowing target for FY2000

    The government is to take recourse to additional borrowings of Rs 200 bn during the current year to fund the burgeoning fiscal deficit. The government has exhausted the borrowing limit that was set at Rs 575 bn in the budget for FY2000. This has been reported by a leading national daily.

    That the government will exceed its borrowing target to fund its deficit was a forgone conclusion. This was mainly due to a slower than expected growth in tax collections and the delay in the disinvestment process under which the government plans to mobilise Rs 100 bn.

    The government's decision to raise a further Rs 200 bn could put upward pressure on interest rates. If interest rates were to rise, there would be a 'crowding out' of investment and this would jeopardise the nubile economic recovery. The Reserve Bank of India (RBI) meanwhile has managed the situation well. The RBI keeps the government securities on its books and offloads them when there is liquidity in the markets. This prevents hardening of interest rates without the government having to either delay or reduce its borrowing needs.

    The large fiscal deficit is not sustainable. The government must take measures to ensure that revenue mobilisations improve and the dependence on market borrowings reduces. This can be achieved by stepping up the pace of disinvestment of holdings in public sector enterprises, improving tax compliance and cutting down on revenue expenditure.

     

     

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