The government's borrowing programme for the next year is going to be a bigger worry than fiscal deficit and subsidies as it adds to the interest payment bill which is an unproductive expenditure, said Indranil Pan, chief economist, Kotak Mahindra Bank.
The government's borrowing has been rising steadily during the post-Lehman years and it is expected to be not less than Rs 5.6 lakh crore next year. With the borrowing cost of the government expected around 7 percent, its interest payment bill will be Rs 40,000-45,000 crore, which is 0.4-0.5 percent of the GDP. This is likely to be a bigger worry than subsidy going forward, he said.
The government is likely to struggle with the current account deficit through 2013 as there is not much hope of a pick-up in global demand and in turn exports.
As far as gold is concerned, the step taken now has been counterproductive as jewellers, who expected an import duty increase, preponed their purchases from overseas and imports actually increased. Now, because of the fear of further steps in the Budget they have forwarded their June-July buying, and so the rise in imports is continuing, he said.
To an extent, the only area the import duty increase is likely to have had the intended positive impact is the investment demand. This may bring about a $3-5 billion correction in the current account deficit from the gold import. But this will not set the macro balances in place as the black market becomes active.
In the investment cycle, there is a catch 22 situation. It is the government who should kick start the cycle as the private sector doesn’t come into the picture unless there is a clear uptick in the global investment demand. But here the government is not able to do much as it is struggling with a high fiscal deficit.
However, the only way for the government to release the investment atmosphere in the country is by kick-starting some of the infrastructure projects, like the Mumbai-Delhi freight corridor, he said.