Lower Govt Borrowing may Not Push Down Rates
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.