Union Finance Minister Pranab Mukherjee on Friday asserted that while it was too early to assess the impact of additional market borrowings on the fiscal deficit, the decision to mop up Rs.53,000 crore more than budgeted for the current financial year was to ensure uninterrupted cash flow.

Commenting on the government's decision to go in for additional borrowings to make up the shortfall in small savings collections, Mr. Mukherjee said: “It is too premature to say that there would be adverse impact on fiscal deficit ... We have to borrow Rs.53,000 crore to ensure that there is an uninterrupted cash flow. As far as fiscal deficit is concerned, we shall have to consider various other factors”.

As per the Budget for 2011-12, the government has set itself a target to bring down the fiscal deficit to 4.6 per cent of GDP (gross domestic product) from 5.1 per cent in the previous fiscal. However, both food and headline inflation have been hovering near double digits and the Reserve Bank of India (RBI) has had to hike its key policy rates to contain the price spiral. While inflation remains untamed, higher interest rate offered by banks has led to a switch from small savings under the National Small Savings Fund (NSSF) such as post office schemes to the high-yielding bank deposit schemes.

Alongside, a growth slowdown owing to high interest rates has led to lower revenue collections.

Significantly, small savings collection during the April-June quarter this fiscal had witnessed a Rs.26,542-crore decline as against an increase of Rs.13,250 crore during the same quarter of 2010-11. This aspect was also highlighted by the Finance Ministry in its quarterly review tabled in Parliament during the monsoon session. “The decline in small savings collection also impacted government cash management,” it said.

In such a scenario, the government, in consultation with the RBI, has decided to tap the market to meet its expenditure during the second half of the fiscal year. As a consequence, the government's gross borrowings in 2011-12 is set to surge to about Rs.4.70-lakh crore from Rs.4.17-lakh crore budgeted earlier.

Some economic analysts tend to agree with the Finance Minister's view that the fiscal deficit would not be adversely impacted as the additional borrowings are meant to make up the shortfall in small savings.

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