RBI Paper
Lower market loan by govt to aid private sector avail more fund
This story was originally published at 21:21 IST on 19 August 2024
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NEW DELHI – The government's effort to gradually lower its market borrowing to the pre-pandemic level will facilitate greater availability of resources for the private sector, the Reserve Bank of India's staff said in a paper today. In the Budget for 2024-25 (Apr-Mar), the government has cut its gross market borrowing to 14.01 trln rupees from 14.13 trln rupees in the Interim Budget and 15.43 trln rupees a year ago.
The government's market borrowing has more than doubled since the COVID-19 pandemic, when the fiscal deficit had ballooned to 9.2% as a percentage of GDP in 2020-21. Due to high market borrowing, more funds in the market get concentrated into government securities. This also pushes up the cost of borrowing for the private sector.
The government has set an aim to reduce the deficit to below 4.5% of GDP by 2025-26. For the current year, the government has cut the fiscal deficit estimate to 4.9% of GDP from 5.6% of GDP a year ago.
From 2026-27 onwards, the government aims to keep the fiscal deficit each year such that the Centre's debt as a per cent of GDP will be on a declining path, said the paper authored by RBI officials. The views expressed in the paper do not necessarily reflect those of the central bank.
The total outstanding debt of the central government is projected to be 56.8% of GDP in 2024-25. The debt-to-GDP ratio had peaked to 62.7% in 2020-21 due to the COVID-19 pandemic.
"Overall the Union Budget 2024-25 strikes the right balance between fiscal prudence and macroeconomic stability which should strengthen the medium-term growth outlook," the paper said.
The RBI has projected India's GDP growth for the current year at 7.2%. This is higher than the finance ministry's projection ranging from 6.5% to 7.0% for this year, as given in the Economic Survey for 2023-24. End
Reported by Krity Ambey
Edited by Deepshikha Bhardwaj
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