Lower Govt Bor­row­ing may Not Push Down Rates

The Economic Times - - Budget: Day After - Our Bu­reau

New Delhi: The gov­ern­ment’s mar­ket bor­row­ing is ex­pected to be lower dur­ing the next fis­cal year, but this may not nec­es­sar­ily help in­ter­est rates­movesouthas­thereis­like­ly­to­bea cor­re­spond­ing in­crease in the mar­ket bor­row­ings of states. This is be­cause of a change in the way small sa- vings col­lec­tions, es­pe­cially the Na­tional Small Sav­ings Fund (NSSF), is be­ing in­vested.

Based on the rec­om­men­da­tions of the 14th Fi­nance Com­mis­sion, the gov­ern­ment has de­cided to dis­con­tinue in­vest­ment of NSSF re­ceipts in state gov­ern­ment se­cu­ri­ties. Only Arunachal Pradesh, Ker­ala, Mad­hya Pradesh and Delhi have cho­sen to bor­row from NSSF col­lec­tions. “This is ex­pec- ted to bring a quan­tum change in the bor­row­ing pat­tern of the Cen­tre as well as the states,” says the Medium Term Fis­cal Pol­icy State­ment re­leased in the bud­get.

The bulk of NSSF re­ceipts will now be in­vested in the cen­tral gov­ern­ment se­cu­ri­ties, re­sult­ing in a con­comi­tant re­duc­tion in the mar­ket bor­row­ings com­po­nent.

“Just op­po­site to this, the state go- vern­ments’ mar­ket bor­row­ings size is ex­pected to in­crease, as there will not be any re­ceipts from NSSF,” the state­ment notes. In FY18, the gov­ern­ment’s net mar­ket bor­row­ings are pro­jected to de­cline to .₹ 3.5 lakh crore from .₹ 3.66 lakh crore in the cur­rent fi­nan­cial year. Se­cu­ri­ties against small sav­ings will net .₹ 1lakh crore in FY18, more than .₹ 90,377 crore in the cur­rent fis­cal.

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