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The government is looking at trimming its borrowing target for the second half of the fiscal. The move, if carried out, could help the central bank Governor Raghuram Rajan in his efforts to stabilise the rupee and also regain investor confidence.
“It is too early to say but there could be a reduction in the second half borrowing target. The actual cash position will have to be reviewed fully,” said a senior official, adding that a final decision would be taken towards the end of the month when officials from finance ministry and the Reserve Bank of India would meet on the issue.
Markets keenly watch the level of government borrowings as this determines the extent of liquidity available. The RBI, in addition to regulating the money supply, also acts as debt manager for the Centre.
The Centre had pegged its gross borrowing target at Rs 5.79 lakh crore with a net borrowing component of Rs 4.84 lakh crore for 2013-14. Of this, it plans to raise 58 per cent or Rs 3.49 lakh crore in the first half of the fiscal.
Lower-than estimated market borrowings could allow private sector to go ahead with more fund raising from the market and also bring down yields on long-term paper.
But the fiscal space to go ahead with such a reduction could be only minimal given that the fiscal deficit target of 4.8 per cent of the GDP is already under pressure due to hardening crude oil prices and a depreciating rupee.
“With the uphill task of meeting the fiscal deficit target this year, it is difficult to understand how the government would cut down its market borrowings unless it plans to look at alternative sources of financing or a significant expenditure compression,” said Abheek Barua, chief economist at HDFC Bank.
On September 2, the RBI cut down the quantum of government bonds to be auctioned this week by Rs 5,000 crore.
“In view of the prevailing market condition, the notified amount of the auction for the week ending September 06, 2013, has been reduced from Rs15,000 crore to Rs 10,000 crore,” it had said in a statement.
As the oil subsidy bill rises, Planning Commission deputy chairman Montek Singh Ahluwalia recently said the government could consider reducing the Plan expenditure while preparing the Revised Estimates for the fiscal.
The Centre’s fiscal deficit in the first four months of 2013-14 touched nearly 63 per cent of its full year target while