Govt To Exceed Target Debt To Control Deficit
The government is expected to tap the market for borrowing over and above the annual target after the budget. This has become imperative to meet the government's revenue deficit, caused by the failure of the public sector undertakings disinvestment programme and the shortfall in tax collections.
While the Union government's budgeted borrowing programme is nearly complete, it is yet to bridge the gap of Rs 5,000 crore it had intended to raise as part of the disinvestment proceeds. With tax collections also likely to be hit by the industrial slowdown, the deficit is expected to be higher than the projections.
The government will tap the market after the budget, by when a clearer picture would have emerged on the extent of the deficit, says the treasury head of a public sector bank. Most marketmen agree with this statement. However, they differ on the route that they expect the government to adopt.
In the recent auction of 10-year paper, the cut-off yield was fixed at 13.65 per cent. While the notified amount was Rs 1,000 crore, the bids tendered aggregated to Rs 2,914.62 crore. One section of the market believes that the government could come out with another issue of 10-year paper at a fixed coupon of 13.65 per cent for raising part of the shortfall.
Insurance companies and provident funds are potential investors in a fresh issue of 10-year paper, especially since insurance companies got only partial allotment at the auction. Besides, these institutions are reported to be buying this paper from the secondary market, resulting in this security quoting at a 30 paise premium.
However, the treasury head of a leading public sector bank pointed out that the Reserve Bank of India could have easily retained the oversubscribed amount of over Rs 1,900 crore if the government was keen on raising money in excess of the budgeted figure.
Thus, the fact that the apex bank did not retain the oversubscribed amount appears to give credence to the view that the government might not want to borrow from the market. This view is strengthened by the fact that the central bank has consistently been warning the central government against falling into an internal debt trap.
According to the treasury head: