Govt borrowing up by Rs 52800 crore in H2FY12

Moneycontrol Bureau

The economic affairs secretary today announced an increase in government borrowing for the second half of the fiscal (FY12) by Rs 52800 crore. This comes amidst worries of economic slowdown and a depleting treasury that the nation now faces. R.Gopalan, the DEA secretary, however pin-pointed the decline in small savings to be the reason behind the increase in gross borrowing.
Fiscal deficit is generally financed through market borrowing, short term bills, T- bills or external assistance. Out of the total lot, Rs 24,000 crore was estimated to come in through small savings. However, due to rising deposit rates, people were increasingly seen preferring bank deposits instead of going for small savings, reports Aakansha Sethi os CNBC-TV18. This means a short fall of about Rs 35,000 crore in small savings.
Additionally, the government had cash drawn about Rs 20,000 crore this fiscal and were expecting an opening cash balance of Rs 33,000 crore. However, Sethi says that the figure now stands at Rs 16,500 crore, and this was due to an error in calculation! This translates to yet another shortfall in the cash-drawn amount, apart from the small savings.
Now, instead of financing the deficit through these two modes, the government has decided to make up for the short fall through an increase in market borrowing.
While Gopalan has said that fiscal deficit target will remain unchanged for the full year, it remains to be seen how they do stick to the targeted and budgeted level of deficit at 4.6% of GDP for the current financial year.