Govt to borrow Rs 46k cr more to perk economy up
The Financial Express, February 11, 2009, Page 1
Economy Bureau
New Delhi
Faced with a surging expenditure bill and dwindling tax revenue, the Centre announced a massive dose of additional borrowing of Rs 46,000 crore from the market, to be completed in two months. The additional funds for 2008-09 will be raised in four tranches through the sale of dated securities between February 20 and March 20 to finance the slew of stimulus measures announced over the past two months to prop up the growth rate in the economy that has dipped to 7.1%- a five-year low.
But government managers were quick to point out this will not stifle the demand from companies for additional funds. Planning Commission deputy chairman Montek Singh Ahluwalia said, “There will be no difficulty in accommodating the government borrowings. There will be no liquidity crisis.”
He was referring to the trend for banks across Asia which have found government debt as a safer avenue to invest as risk levels have increased in all economies, that, in turn, has exacerbated the crisis. An ADB report on Tuesday said, ‘Private companies in Asia were being crowded out of debt markets this year as governments in the region boost bond sales to fund economic stimulus measures.’ The flood of government bonds has reduced the prices of GOI paper, making it the worst performer among 10 Asian economies, a Bloomberg report said.
With the additioanl borrowing, the government will raise Rs 1,16,000 crore of extra funds from the markets in 2008-09, above the gross budget estimate of Rs 1,45,000 crore. The government has also doled out as tax concession Rs 50,000 crore to the industry.
“We had discussions with the Reserve Bank of India. The extra borrowing between February 20 and March 20 is going to be Rs 46,000 crore”, Ashok Chawla, secretary in the department of economic affairs said on Tuesday after a meeting with RBI deputy governor Shyamala Gopinath.
“RBI will release details about the government’s extra borrowing programme and ensure it is conducted without disrupting the market,” RBI governor Duvvuri Subbarao said later. He said there are no plans for a private placement of government bonds with the central bank.
Former RBI governor C Rangarajan, now a member of the Rajya Sabha, indicated that RBI still had room for a rate cut. “The stance of the monetary policy should be to stimulate growth. With prices on the downswing, RBI has room to manoeuvre with rates in the monetary policy,” he said.
Bankers said that the additional borrowing was anticipated and was already getting priced in 10-year bond yields. “With the government having an expected deficit of anywhere between Rs 1,50,000 crore and Rs 1,80,000 crore, this additional borrowing was expected. But liquidity is comfortable, especially since credit demand is falling, and so there should not be an increase in interest rates,” Abheek Barua, chief economist at HDFC Bank, said.
Bond yields rose after the government’s announcement — the yield on the 8.24% note due in April 2018 rose by as much as 13 basis points to 6.43%. It had stood at 6.30% before the announcement.
As a result of the borrowing, the fiscal deficit could touch 6% of GDP. “This represents a massive slippage in fiscal policy, especially as most of it will be used for revenue expenditure. But at this time, when an economic stimulus is needed, this was unavoidable,” DK Srivastava, director, Madras School of Economics, said.
The Financial Express, February 11, 2009, Page 1
Economy Bureau
New Delhi
Faced with a surging expenditure bill and dwindling tax revenue, the Centre announced a massive dose of additional borrowing of Rs 46,000 crore from the market, to be completed in two months. The additional funds for 2008-09 will be raised in four tranches through the sale of dated securities between February 20 and March 20 to finance the slew of stimulus measures announced over the past two months to prop up the growth rate in the economy that has dipped to 7.1%- a five-year low.
But government managers were quick to point out this will not stifle the demand from companies for additional funds. Planning Commission deputy chairman Montek Singh Ahluwalia said, “There will be no difficulty in accommodating the government borrowings. There will be no liquidity crisis.”
He was referring to the trend for banks across Asia which have found government debt as a safer avenue to invest as risk levels have increased in all economies, that, in turn, has exacerbated the crisis. An ADB report on Tuesday said, ‘Private companies in Asia were being crowded out of debt markets this year as governments in the region boost bond sales to fund economic stimulus measures.’ The flood of government bonds has reduced the prices of GOI paper, making it the worst performer among 10 Asian economies, a Bloomberg report said.
With the additioanl borrowing, the government will raise Rs 1,16,000 crore of extra funds from the markets in 2008-09, above the gross budget estimate of Rs 1,45,000 crore. The government has also doled out as tax concession Rs 50,000 crore to the industry.
“We had discussions with the Reserve Bank of India. The extra borrowing between February 20 and March 20 is going to be Rs 46,000 crore”, Ashok Chawla, secretary in the department of economic affairs said on Tuesday after a meeting with RBI deputy governor Shyamala Gopinath.
“RBI will release details about the government’s extra borrowing programme and ensure it is conducted without disrupting the market,” RBI governor Duvvuri Subbarao said later. He said there are no plans for a private placement of government bonds with the central bank.
Former RBI governor C Rangarajan, now a member of the Rajya Sabha, indicated that RBI still had room for a rate cut. “The stance of the monetary policy should be to stimulate growth. With prices on the downswing, RBI has room to manoeuvre with rates in the monetary policy,” he said.
Bankers said that the additional borrowing was anticipated and was already getting priced in 10-year bond yields. “With the government having an expected deficit of anywhere between Rs 1,50,000 crore and Rs 1,80,000 crore, this additional borrowing was expected. But liquidity is comfortable, especially since credit demand is falling, and so there should not be an increase in interest rates,” Abheek Barua, chief economist at HDFC Bank, said.
Bond yields rose after the government’s announcement — the yield on the 8.24% note due in April 2018 rose by as much as 13 basis points to 6.43%. It had stood at 6.30% before the announcement.
As a result of the borrowing, the fiscal deficit could touch 6% of GDP. “This represents a massive slippage in fiscal policy, especially as most of it will be used for revenue expenditure. But at this time, when an economic stimulus is needed, this was unavoidable,” DK Srivastava, director, Madras School of Economics, said.
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