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Borrowing cut not to upset fiscal deficit math

Author: Debasis Mohapatra/Friday, January 19, 2018/Categories: Government

Borrowing cut not to upset fiscal deficit math

Mumbai: Despite drastic reduction in additional borrowing plan, the government is likely to meet the fiscal deficit target for this fiscal as economists are of the opinion that resources raised from non-tax sources will bridge the gap.

They also said that higher proceedings from disinvestment and resources raised from other sources like special dividends from public sector units (PSUs) would help in sticking to the target.

“I think, the government would stick to the fiscal deficit target. They are mobilising non-tax revenue. What are the sources of this mobilisation is yet to be known but government will be able to meet the target,” chief economist of CRISIL, D Joshi told The Finapolis.

In December, the central government has announced that it would borrow an additional Rs 50,000 crore in the current financial year through dated securities. However, it has altered the initial plan and on January 17 said it would only borrow Rs 20,000 crore from the market.

“The rationale behind sticking to the fiscal consolidation path is that bond yields will soften and this will help in reducing the overall cost of funds for the government,” Joshi added.

Meanwhile, bond market has reacted to the news with sharp fall in yields. The 10-year benchmark bond yields fell 16.6 basis points to close at 7.22% on January 17.

“Slashing of additional borrowing has given confidence to the market that government will stick to the fiscal consolidation path. We feel, fiscal deficit target will be met as disinvestment proceedings and special dividend from PSUs will be able to bridge the gap arising from fall in GST collections,” associate director at India Ratings and Research Soumyajit Niyogi said.

The government has budgeted to have net borrowings of Rs 4.23 lakh crore and gross borrowings of Rs 5.80 lakh crore in 2017-18. However, fall in dividends from the Reserve Bank of India and dip in GST collections have raised concerns over exceeding the overall target.

While total GST revenue has dipped to Rs 80,808 crore in December, a fall of 14% from August; RBI dividend payout has dropped by half to Rs 30,659 crore.

“We feel that government could achieve disinvestment proceedings of Rs 1 lakh crore during this fiscal. It has already reached a target of around Rs 60,000 crore and if ONGC-HPCL deal is materialised, then it is pretty much possible to exceed this fiscal’s disinvestment target,” Niyogi said adding that this would help in meeting the fiscal deficit target.

On impact of capital spending, Niyogi said that the government investment on capital assets may not suffer as it may defer some of the revenue expenditure items to the next fiscal.

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