Soft Rates Bypass Govt Borrowings

The continuous softening of interest rates notwithstanding, the Centre continues to pay steep interest on its domestic market borrowings. As on January 1, 2002, almost 75 per cent of the Rs 5 lakh crore debt stock carries coupons of over 11 per cent.

Not surprising then, very little of the money raised by the government through the Reserve Bank of India is left for productive investments. For instance, in the current fiscal, of the net borrowings worth Rs 77,353-crore, interest on market loans accounts for a whopping 68 per cent or Rs 52,824 crore, leaving barely one-third of the funds for any other expenditure.

Primary market dealers point out that the average cost of market borrowings continues to be above 10 per cent. Compare this to the bank rate of 6.5 per cent or the benchmark yield on 10-year government paper of less than 7.25 per cent. It indicates a huge gap of over 600 basis points.

In fact, as per data available with the leading primary dealer, PNB Gilts, the Centre pays exorbitant interests of 13 per cent and more on debt to the tune of Rs 33,000 crore. This is higher than even the prime lending rate (PLR) of 11.5-12 per cent that banks offer to their top clients.