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Deficit: India To Borrow Rs 50K Cr

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India plans to borrow up to Rs 50,000 crore by pledging property and shares to bridge the government's budget deficit, Reuters quoted Bloomberg news agency on Thursday, citing unnamed government officials.

Shares in companies such as cigarette-to-hotels group ITC, engineering conglomerate Larsen & Toubro and Axis Bank held by a state-controlled fund could be offered as collateral to raise the cash, the news agency said.

The cash will be used by a newly-created fund manager to buy stock in state-run companies and help the government's Rs 40,000 crore divestment programme for the fiscal year that ends in March, it said.

News about the government borrowing programme saw ICICI Bank Ltd, the biggest private lender, rising to a two- week high. HDFC Bank Ltd, the second-biggest, rose 1.7 per cent. India will set up a fund manager by January 15 that will pledge stocks it holds in non-state companies including ITC Ltd., Axis Bank Ltd. and Larsen & Toubro Ltd., two government officials with direct knowledge of the matter said, reported Bloomberg.

India's current account deficit is expected to widen further on the back of higher oil prices and sharp increase in imports of bullion, machinery and electronics, the Reserve Bank of India (RBI) said on Thursday.

Inflation risks remain high and a slowdown in revenue collections and higher spending on subsidies may make it challenging to achieve the fiscal deficit target of 4.6 per cent of gross domestic product in the fiscal year ending March, the RBI said in its Financial Stability Report.

India's current account deficit swelled to $14.1 billion in its fiscal first quarter, nearly triple the previous quarter's tally. The full-year gap is expected to be around $54 billion.

"Recent data indicate further widening of the trade balance. Consequently, CAD which increased during Q1 of 2011-12 is expected to widen further," the report said.

Higher government borrowings could crowd out private sector demand for funds and investment, the RBI said, adding domestic demand was showing weakness.

Gross tax collections during the period were reported at 39.6 per cent of Budget Estimates. These were 43.4 per cent lower than that recorded in the year ago period.

In the direct taxes, corporation tax collections showed a moderate growth of 3.4 per cent due to large refunds while personal income tax increased by 17.3 per cent against budgeted growth rates of 21.5 per cent and 16.2 per cent, respectively, for FY-12.

Among the major indirect taxes, collections from customs duty and service tax showed growth rates of 22.5 per cent and 37.5 per cent, respectively, during April-September 2011 as against budgeted growth rates of 15.1 per cent and 18.2 per cent.

RBI Eases Borrowing Norms To Ease Liquidity Crunch
In order to ease the liquidity situation, the central bank on Wednesday allowed banks to borrow additional amount from it under the Marginal Standing Facility (MSF), a new lending window which was opened by the central bank in the current fiscal.

"It has been decided to permit banks to avail themselves of funds from RBI on overnight basis, under MSF, against their excess Statutory Liquidity Ratio (SLR) holdings," the Reserve Bank said in a circular.

MSF is the rate at which banks can borrow overnight from RBI. SLR refers to the amount which the banks are mandatorily required to invest in government securities. At present, the banks SLR is 24 per cent.

RBI also said that banks can borrow funds on overnight basis below the stipulated SLR, upto one per cent of their deposits.

It further said that banks will not be required to seek waiver for default in SLR compliance.

There is liquidity problem in the system following payment of third installment of the advance taxes by the corporates and other assesses. The last date for payment of advance tax was December 15.

Besides, the companies and traders will have to garner resources for payment of service tax. The last date for payment of half-yearly service tax is on December 26.

The RBI had opened the MSF window to allow banks to borrow money from central bank from May 9.

The central bank in its mid-quarter credit policy announced earlier in the month had refrained from tinkering with the key rates and ratios despite the demand from the industry to lower the Cash Reserve Ratio (CRR), the amount which the banks are required to park with the central bank in cash. The CRR is current 6 per cent.

(With Agencies)

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