New Delhi: The government could face difficulties in managing its borrowing programme for the current fiscal year amid the prevailing tight liquidity conditions as banks hold a higher proportion of government securities, the Reserve Bank of India (RBI) said.
“Notwithstanding the relatively lower budgeted market borrowings of the central government in 2011-12, managing the borrowing programme would be a challenge in view of tight liquidity conditions and the high level of excess SLR holdings of the banks,” the RBI said in its annual report.
Gross government borrowings in the current fiscal (2011-12) are pegged at Rs4.17 trillion, down from Rs4.37 trillion in 2010-11.
Of this, the government is scheduled to borrow Rs2.50 trillion in the first half, as against Rs2.84 trillion in the corresponding April-September period last year.
The tight liquidity conditions would make market borrowing difficult for the government. Also, the private sector might face some problems, as there would be less funds available in the market for them.
Moreover, the higher statutory liquidity ratio (SLR) of banks would restrict them from buying bonds floated by the government.
The apex bank also said that the government’s ability to rein in the fiscal deficit would influence the conduct of the market borrowing programme in the current fiscal.
The government has estimated the fiscal deficit target at 4.6% in the current fiscal, down from 4.7% last year.
“The conduct of the market borrowing programme will be influenced by the ability of the government to rein in the fiscal deficit and its financing by way of market borrowings,” the report added.