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Govt likely to meet fiscal deficit target this year: SBI Research

SBI Research in its latest report has stated that the government is likely to meet the fiscal deficit target this year and pegged fiscal deficit at Rs 6.72 trillion or 3.2% of gross domestic product (GDP) for next fiscal year (2019-20), assuming a moderate nominal GDP growth of 11.7%. It added that the fiscal gap will be met at the budgeted 3.3 percent for FY19.

The report noted that the government's gross market borrowing will be Rs 6.50 trillion in FY20, while net market borrowing to be at Rs 4.13 trillion, less than FY19 estimate of Rs 4.20 trillion. in order to keep the redemptions in check, the report estimates switching of securities worth around Rs 30,000-35,000 crore, which would bring in gross borrowing near the FY19 budgeted target of Rs 6.05 trillion. It is also expecting minimum buybacks in FY20 as the government may be carrying forward a minimal cash balance into FY20. The government has also dipped into small savings scheme to meet a part of its expenditure in FY19. As against the budgeted amount of Rs 75,000 crore (revised later to Rs 1 trillion), borrowings through small savings have reached Rs 45,396 crore by November 2018.

SBI Research said a large funding through the National Small Savings Fund (NSSF) is possible owing to interest gap between bank deposits and the small saving rates. The gap between the small saving interest rate (average of PPF and Sukanya Samridhi accounts rates) and average term deposit of year maturity being offered by banks still remains around 98 basis points. However, this may make it difficult for banks to reduce deposit rates. In the past few months, with deposit growth significantly lagging credit growth, banks have been increasing deposit rates to avoid deposit flight.

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