Govt. to borrow more; fiscal deficit may widen 

Govt. to borrow more; fiscal deficit may widen 

Context

The Centre has decided to borrow an additional ₹50,000 crore in the last three months of this financial year, a move that some economists said could result in the government missing its budgeted fiscal deficit target of 3.2% of GDP

Countermeasure

The additional borrowing, which would be done through government bonds, would, however, be offset by trimming T-Bills (treasury bills) from ₹86,203 crore to ₹25,006 crore

Review of borrowing programme

The borrowing programme of the Government of India has been reviewed, with RBI, and following decisions taken:

1. The Government will trim down the T-Bills from present collections of ₹86,203 crore to ₹25,006 crore by March end, 2018
2. The Government will raise additional market borrowings of ₹50,000 crore only in fiscal FY18 through dated government securities
3. The Government will thus, between now and March 2018, not be raising any net additional borrowing (T-Bills will be run down by ₹61,203 crore and additional G-Sec borrowing will be ₹50,000 crore)

Impact

Any slippage from the fiscal deficit target this year, could have an indirect effect on the overall fiscal consolidation efforts

• If this year’s fiscal deficit is 3.5% or higher, next year’s deficit should also stay close to that. Because, the government may not want to go for an aggressive consolidation in an election year since it needs to spend more to push growth, which is still picking up