The Reserve Bank of India (RBI) said On Monday that the government’s borrowing programme would be substantially higher in 2009-10 as against a year earlier, irrespective of whether the full budget will be presented by the new government or not.
“We know that, in two months from now, things are not going to change dramatically. The borrowing programme would be substantially higher,” RBI Governor D Subbarao said while addressing the national executive council of the Federation of Indian Chambers of Commerce and Industry (FICCI).
“We will have to wait for the full budget of the government to really understand what is going to be the total borrowing programme and we will take a view then,” he added.
The government has announced that it will raise Rs 2,41,000 crore in April-September 2009 and a total Rs 3,62,000 crore in the full financial year (2009-10). At the end of the last financial year, total scheduled government borrowings were Rs 3,06,000 crore and, in the first half, it was Rs 1,06,000 crore.
The RBI governor said that the central bank has announced a timetable for borrowing as well as open market operations (OMOs) programme (to purchase bonds for infusing liquidity). If one put together the unwinding of Market Stabilisation Scheme bonds (MSS) and OMO operations along with borrowings, the net borrowings in the first half of 2009-10 would be comparable to what was witnessed in the corresponding period last year.
“If you put those numbers together (the auction and numbers of the OMO, including redemption of MSS), the net borrowing of 2009-10 is going to be comparable with the net borrowings of 2008-09,” Subbarao said.
‘Monetising fiscal deficit a benign solution’
Terming monetisation of fiscal deficit as a “benign” solution, the RBI governor said that printing money should be backed by real resources.
“Around the world, people are printing money. The (US) Fed is doing it, the ECB (European Central Bank) is doing it, the Bank of England and the Bank of Japan are doing it. And we know that countries and economies cannot print money out of crisis. The short-term requires that we print money, but printing money has to be backed up by real resources,” Subbarao said.
He added that the short-term impact of monetising deficit should also be taken into account as, in case of monetisation, the government would have to either raise taxes or the RBI would have to settle for higher inflation.
“There is no free lunch. We have to settle for one of these things. So when people say monetise the deficit, please think not just about the next three months, (but) about the next three years,” he said. Subbarao also stressed that India’s recovery from the economic downturn would be swifter and sharper than other countries.
“The strong fundamentals of the economy helped India to clock an average 9 per cent growth rate in the last four years. Once the world economy regains growth, India’s recovery will be much faster and steeper than the rest of the world,” he said.
He also pointed out that the country’s growth moderation, as a consequence to the global economic downturn, has been steeper than expected, adding the main policy objective of RBI would be to arrest the moderation in economic growth and restore the eroded market confidence.
