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Borrowing programme safe bet for private sector

For illustrative purpose only

The borrowing programme for FY23 is unlikely to push out the private sector, while government costs may rise slightly, said finance secretary TV Somanathan.

The news: Somanathan said that the Centre’s budget predictions are reasonable. In addition, if minor savings receipts surpass the budgeted amount, the government may borrow less from the market.

What they are saying: “I don’t think this is a situation of crowding out. It’s not as if people are seeking to borrow hugely, private sector investment intentions are still moderate,” he said in an interview with a leading newspaper.

  • “India has a fairly efficient capital market, both in equity and debt,” he said.
  • “In an efficient market, when the supply of bonds goes up, it is bound to have some reaction, unless there is central bank intervention,” he added.
  • “We have again taken a conservative estimate of small savings, therefore, that has resulted in a larger increase in market borrowing than increase in the deficit,” he said.
  • “There is some issue of absorptive capacity but if you look at the plan, it is to go from Rs 5.5 lakh crore to Rs 6.5 lakh crore in the central sector. That is less than 20 per cent (increase). That absorptive capacity, I am quite optimistic, will be there,” he said.
  • According to Somanathan, Rs 1 lakh crore is coming to the states, and they have the ability to spend much more on capital because their existing budget structure is biased toward revenue spending.
  • “If they are given this extra money, at the very least, we are quite optimistic they will be able to effectively spend this Rs 1 lakh crore,” he said.
  • The finance secretary stated that the government has initiated spending reductions following a significant increase in FY21. “Any further rises must be milder if we are to reach our fiscal objectives,” he added.
  • “When we are expanding capital spending at this rate, revenue expenditure must be restrained,” he said

Government borrowings unlikely to crowd out private sector, finance secretary TV Somanathan, Private Sector

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