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Modi government increases reliance on costly small savings to fund India Budget

Read more at m.economictimes.com

By Jeanette Rodrigues

Prime Minister Narendra Modi’s government is increasingly tapping citizens’ small savings to fund India’s budget plans, a costlier method as traditional avenues face a glut of debt.



The administration estimates it will borrow about 5 trillion rupees ($69 billion) in the year through March 31 from this pool meant to support households and pensioners, double the 2.5 trillion rupees initially budgeted. Even that’s a steep rise from almost nothing under previous governments.

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The increased reliance may eventually prove costly. The federal government pays about 8% for 10-year small savings, compared with the 6% yield on a sovereign bond of similar maturity. The higher rates on a competing product limit how steeply banks can cut deposit — and consequently lending — rates, hampering monetary transmission.

Interest costs are budgeted to account for 20% of total expenditure in the year starting April 1 — up from 18% estimated in the previous year — even as total borrowing is projected to dip.

Read more at m.economictimes.com

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