Private sector borrowings are set to increase in the coming years spurred by a revival in capital expenditure with the resultant demand for funds expected to be largely met by households, Reserve Bank of India Deputy Governor Michael Debabrata Patra said on Tuesday.
Observing that the private corporate sector had been drastically reducing its net borrowings due to increased profits and subdued capacity creation, Dr. Patra said: “Looking ahead, its net borrowing requirement is likely to rise on the back of a revival in the capex cycle”.
“These financing requirements will largely be met by households and external resources,” he told participants at the Financing 3.0 summit organised by the Confederation of Indian Industries (CII).
With households expected to build back their savings, Dr. Patra. said households would continue to be the top net lenders to the rest of the economy in the coming decades.
The public sector, which traditionally spends more than its saves, was expected to remain a net borrower in view of its importance in fiscal policy, he said.
On the role of foreign capital, the RBI official said, “As the productive capacity of the economy rises and its ability to absorb foreign resources expands, the volume of external financing and its composition may undergo fundamental shifts.” However, given past experience, “external debt sustainability” would remain a policy priority for the RBI, he assured.
