New Delhi: The Union government is ready to deliver further fiscal stimulus to arrest a slowdown in growth, the finance minister said on Tuesday, but added that fiscal prudence was also a priority.
Pranab Mukherjee said stimulus steps taken since late 2008, including cuts in duties and extra spending, were having an impact and the government would take further measures to revive activity, although some sectors such as textiles were badly hit.
“What is needed right now is the stimulus to the growth. But at the same time, we cannot lose our sight, that we cannot indulge in fiscal profligacy,” Mukherjee told CNBC-TV 18 when asked if more stimulus measures were planned.
On Saturday, Mukherjee had said efforts would be made to insulate the economy from the global financial crisis and slowdown, and media reports have said the additional spending could be equal to 0.5-1.0% of gross domestic product.
Finance secretary Ashok Chawla told Reuters finance ministry and Reserve Bank of India officials would meet on Saturday to finalise a revised borrowing plan for June, sending bond yields higher on concerns of more supplies.
According to its borrowing calendar, the government is expected to borrow Rs48,000 crore ($10 billion) of bonds between 29 May and 26 June.
After a resounding victory in general elections, Mukherjee said the Congress party-led coalition was likely to detail its 2009-10 (April-March) budget in the first week of July.
While extra spending could give a welcome boost to growth, economists are worried that it may not be affordable given the consolidated central and state deficits have already topped 11% to be among the highest in the world.
Growth has slowed sharply as the global downturn hit harder than expected.
Growth is expected to hit a seven-year low under 6%, down from about 7% in 2008-09 and rates of 9% or more in the previous three years.
“Considering all these aspects, whatever is appropriate, I will take the appropriate measure,” Mukherjee said.
“We are saying whatever the economy needs, will be done.”
In an interim budget in February ahead of the elections, Mukherjee outlined plans for a record 3.6 trillion of gross market borrowing. Of that, two-thirds was scheduled for the first six months of 2009-10.
In early May, the RBI raised the size of weekly bond auctions for the third and fourth week of May by a quarter each to Rs15,000 crore ($3.1 billion), raising concerns that borrowing needs had increased.
Senior traders said the pressure on government borrowing was evident from the huge overdrafts on its short-term funding line, the Ways and Means Advances (WMA), for five consecutive weeks.
“It’s a huge negative, before the budget the government is already running a large negative WMA, planning a stimulus package and revising borrowing. The revision can only be upward and also frontloaded,” a senior dealer at a foreign bank said.
At the day’s high of 6.58%, the 10-year yield was up 35 basis points in May, with the bulk of the rise coming in the past four days.
It is up 133 basis points from end-2008, but it is 79 basis points below a high of 7.37% hit in March when fears about the government’s borrowing needs peaked.
“The market has discounted the overshooting in government borrowing, they want to know to what extent they will overshoot,” said J Moses Harding, head of global markets at IndusInd Bank.
‘Bharti-MTN deal a welcome move’
The finance minister said Bharti Airtel’s proposed deal aimed at a merger with South Africa’s MTN was a welcome move.
“It is a welcome move, I must say,” Mukherjee told television CNBC TV18.
Bharti and MTN said on Monday they were mulling a deal which could create one of the world’s biggest cell phone groups by subscribers.