The Hindu Business Line : Centre reduces market borrowing by 27% in April-Jan

IMPROVED fiscal position, coupled with large-scale receipts from pre-payment of high cost loans by State Governments, has enabled the Centre to reduce its market borrowings by around 27 per cent in gross terms during the first 10 months of 2004-05.

The Centre's gross market borrowings through issue of dated securities and 364-day treasury bills amounted to just Rs 96,000 crore during April-January 2004-05, which is much below the Rs 131,500 crore raised in the corresponding period of the previous fiscal.

While the total market borrowings were budgeted to be higher at Rs 1,50,817 crore during 2004-05, against Rs 1,47,636 crore in 2003-04, Finance Ministry officials reckon the actual figure for this fiscal to be in the region of only Rs 1,06,000 crore.

The officials said one reason for borrowings being lower had to do with the better fiscal position.

While the Union Budget had assumed an increase in the Centre's fiscal deficit to Rs 1,37,407 crore in 2004-05, from the previous year's provisional figure of Rs 1,25,960 crore, the latest data for April-November 2004 points to a lower level of Rs 70,717 crore, compared to Rs 93,656 crore during April-November 2003.

The lower fiscal deficit - the gap between the Centre's total expenditures and its current revenues from tax and non-tax sources, besides non-debt capital receipts - has resulted in its net borrowing requirement being lower than what was budgeted. The second reason for lower market borrowings, the officials said, is the prepayment of past high-cost Central loans by the States.

During the current fiscal, the States are expected to prematurely retire loans worth around Rs 40,000 crore taken from the Centre at 13 per cent plus coupon.

These loans will be swapped with cheaper fresh market borrowings and special securities issued to the National Small Savings Fund (NSSF). The prepayment by States, in turn, translates into higher loan recoveries for the Centre.

Although the latter has used the prepayment receipts to redeem its own 10.5 per cent coupon special securities issued in the past to the NSSF and swapped these with fresh such securities bearing around 6.5 per cent interest, the end result is that the Centre's reliance on market borrowings to finance its fiscal deficit has correspondingly come down.

The extent of reduced dependence on the market can be gauged from the four rounds of cancellation of dated security auctions this fiscal.

These include an auction for Rs 5,000 crore originally planned for April 12-20, 2004 and others scheduled during October 18-25 (Rs 5,000 crore), November 16-24 (Rs 5,000 crore) and December 1-8 (Rs 8,000 crore). While, as per the indicative calendar for issuance of dated securities, the Centre was supposed to mobilise Rs 59,000 crore in the first half and Rs 44,000 crore in the second half, the actual sum raised was only Rs 55,000 crore during April-September and Rs 21,000 crore during October-January.

"We have completed the borrowing programme for 2004-05, barring one 15-19 year security auction for Rs 5,000 crore scheduled during the coming week and another Rs 5,000 crore to be mopped up from 364-day bills," the officials said.

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