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9/23/2019 High government borrowing to check fall in rates - Times of India

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High government borrowing to check fall in rates

TNN | Updated: Sep 21, 2019, 15:31 ISTTimesPoints

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9/23/2019 High government borrowing to check fall in rates - Times of India

https://timesofindia.indiatimes.com/business/india-business/high-govt-borrowing-to-check-fall-in-rates/articleshow/71227228.cms 3/19

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(Representative image)MUMBAI: The Rs 1.45-lakh-crore revenue giveaways by the government is expected to push up interest rates inthe bond markets. A higher fiscal deficit will force the government to borrow more, thereby putting pressure onbond yields and raising the risk of crowding out private investment.

The yield on the benchmark 10-year government bond, which was last traded at 6.64%, shot up over 20 basispoints (100 bps = 1 percentage point) before closing at 6.79%. The biggest fear among bond dealers is that thegovernment will borrow more to make up for its revenue shortfall and increase supply of bonds. However, someeconomists like Soumya Kanti Ghosh of SBI feel that the gap could be bridged through a $10-billion sovereignborrowing, coupled with increase in small savings collections.

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Economists expect that the fiscal deficit could expand to between 3.8% and 4.1% of the gross domestic product(GDP). To fund this, the government will have to borrow an additional Rs 1.5 lakh crore, taking total borrowing toRs. 8.5 lakh crore from the budgeted Rs 7 lakh crore.

“The loss in revenue could, to an extent, be made up from the RBI surplus transfers (Rs 58,000 crore over thebudgeted amount). According to our estimates, the fiscal deficit of the central government in 2019-20 is expectedto widen to around 3.8% from the budgeted 3.3%,” said Madan Sabnavis, chief economist, Care Ratings.

“The expansion in the fiscal deficit could be contained if there is any rollover of subsidies (as has been the case inthe past) and if the budgeted expenditure has been curtailed/not incurred. In that case, the fiscal deficit could bearound 3.6% of the GDP,” he added.

“Government should now issue overseas sovereign bonds and raise around Rs 70,000 crore. Additionally, thegovernment could enlarge borrowing from small savings to the extent of Rs 20,000 crore. These two measurescould provide additional lever to the government for not going for larger additional borrowings,” said Ghosh. He

Economists expect that the fiscal deficit could expand to between 3.8% and 4.1% of the gross domesticproductThe biggest fear among bond dealers is that the government will borrow more to make up for its revenueshortfall and increase supply of bonds

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9/23/2019 High government borrowing to check fall in rates - Times of India

https://timesofindia.indiatimes.com/business/india-business/high-govt-borrowing-to-check-fall-in-rates/articleshow/71227228.cms 4/19

added that in the next step, the government should go for big bang disinvestment, selling some public sector unit toa foreign entity and create a rub-on effect on future disinvestment and valuations.

According to Amar Ambani of Yes Securities, a hefty fiscal stimulus from the government will dissuade the RBIfrom aggressively trimming interest rates further. “With the RBI already delivering a cumulative rate cut of 110bpsduring this calendar year, we see a floor for the repo rate at 5-5.15%. Bond markets will remain indifferent to alikely final rate cut of 25-40bps by the RBI for this fiscal year,” he added.

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9/23/2019 High government borrowing to check fall in rates - Times of India

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9/23/2019 High government borrowing to check fall in rates - Times of India

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9/23/2019 High government borrowing to check fall in rates - Times of India

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9/23/2019 High government borrowing to check fall in rates - Times of India

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