Sixth Pay Commission pay out: Govt needs extra funds, to borrow Rs 10k cr more in H1

Sixth Pay Commission pay out: Govt needs extra funds, to borrow Rs 10k cr more in H1

The government on Tuesday decided to borrow Rs 10,000 crore more than what it had planned for in the first half of 2008-09. Despite fulfilling its borrowing requirement for the first half of the fiscal, the finance ministry has now decided to advance its borrowing programme for the second half by scheduling issuance of dated securities worth Rs 10,000 crore in the month of September itself.

“This has been done keeping in view the emerging requirements of the government, market conditions and other relevant factors,” as per an official release. Accordingly the finance ministry will sell Rs 6,000 crore of 7.94%, 2021 bonds and Rs 4,000 crore of 8.28%, 2032 bonds on September 26.

The government has already borrowed Rs 96,000 crore in the first half of the year and has budgeted its net borrowing at Rs 1 lakh crore for 2008-09. It has however not announced its full borrowing calendar for the fiscal second half.

Analysts feel that the move shows that the government is likely to overshoot its slated borrowing for the year.

“This is a very surprising time to decide to raise funds as liquidity is tight in September because of the heavy payments as advance tax,” Abheek Barua, chief economist, HDFC Bank said. The government expects to overshoot its borrowing estimates and so is sensitising the market to it. Alternatively, it is expects the global financial crisis to worse and so plans to secure domestic fund flows, he added.

Saugata Bhattacharya, economist at Axis Bank said, “This could be because of an immediate increase in its expenditure or because advance tax outflows is lower than projected.” The government may also be of the view that it may be able to raise funds at a lower rate at the current market conditions, he said. The UPA government needs additional funds for the Sixth Pay Commission pay out, issuing bonds for oil and fertiliser and possibly for the farm loan waiver as well. It is also likely to make extra provisions for relief and rehabilitation in wake of the Bihar floods.

As per the pay commission’s recommendations, the salary hikes will cost Rs 22,100 crore this fiscal, while the farm loans to be waived in three instalments is estimated at Rs 71,680 crore. The government has also budgeted Rs 7,500 crore for fertiliser bonds. Oil bonds for the fourth quarter of 2007-08 amounting to Rs 14,956 crore and

for the first quarter of 2008-09 estimated at Rs 24,408 crore will be issued after obtaining Parliamentary approval.


Source: http://www.financialexpress.com/