High government borrowing hinders rates from going down

Govt borrowing hindering fiscal transmission: RBI


“Government borrowing is so high...In a way it is militating against interest rate coming down,” Subbarao said while releasing a collection of essays authored by C Rangarajan, chairman of the Prime Minister’s Economic Advisory Council. The Union government’s gross market borrowings during 2009-10 is estimated to go up to about Rs 4.51 lakh crore from Rs 3.1 lakh crore during 2008-09.


High government spending is likely to crowd out private investment. At this point though the pace of private investment is not high. High government spending can also lead to inflation down the line. With official inflation in negative territory this may not be one of top concerns. However, once the inflation take off it will be difficult to control.
Budget estimates are also typically on lower side. So one can expect that the net borrowing will be higher than Rs 4.5 lakh crore.