Government to stick to borrowing target

The government on Tuesday cleared that its full fiscal year’s borrowing target would not be changed despite the droughts’ increasing pressure on the expenditure side. The government therefore would be borrowing Rs 1.23 lakh crore through the open market during the October-March period.

After a meeting with the finance minister Pranab Mukherjee on Tuesday, deputy governor of the Reserve Bank of India Shyamla Gopinath said that there was no need for any changes in the borrowing target and total borrowings would be completed by February 2010. Earlier, apprehensions were expressed by some quarters that due to potential increase in government’s expenditure on account of drought relief measures, the government might have to increase borrowings.

In order to minimise the possibility of crowding out the private investment, the government has been frontloading the borrowings anticipating that corporate credit demand would increase in the second half of the fiscal. As such, out of the total borrowing target of Rs 4.51 lakh crore, it has already borrowed Rs 2.95 lakh crore. So the balance Rs 1.23 lakh crore would be borrowed in the second half. As per the RBI, remaining borrowings would be on a weekly basis of about Rs 9,000 crore to Rs 10,000 crore per auction.

The mammoth borrowing target of the government this financial year stems from the fact that it is running a 16 year high fiscal deficit of 6.8% and in wake of its efforts to focus on social spending to help boost consumption and growth in an economy hit hard by the global financial turmoil.