ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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CONGRESS-Reluctant Rebels

cent on state government securities which attracted 'subscriptions of as much as Rs 1017 crore against the notified amount of Rs 1,500 crore. The entire subscription amount has been retained. On the other hand, out of a total amount of Rs 1,750 crore collected by the central government from auction of 91 -day treasury bills, only Rs 103 crore came from competitive bidders and as much as Rs 1,342 crore was collected from non-competitive bidders, mostly state governments, and Rs 305 devolved on the RBI. The result of the government taking recourse to auction of instruments at market- related rates of interest has been to push up yield rates on government securities and treasury biIls to levels which have no justification. Apart from the 14 per cent which the state governments have been forced to pay, the yield rates on government of India securities in recent auctions have been 13.25 per cent on the five-year securities offered in conversion of 364-day treasury bills (and even then only about 22 per cent of the outstanding bills of Rs 7,603 crore were converted), 13.75 per cent on 10-year governmeni slock 2005 which also did not manage to raise the full amount of Rs 1.000 crore and 13.80 percent on seven- year government stock 2002 which got only Rs 694,50 crore against the notified amount of Rs 1.500 crore, with the RBI having to subscribe to the balance of Rs 805.50 crore Clearly, the government's fiscal and monetary policies are nearing the end of their tether. The fortuitous circumstance of high liquidity in 1993-94 and 1994-95 brought about by large portfolio capital inflows from abroad had helped the government to cover up the failure of its policies temporarily, but now the insufficiency of domestic saving, which has been a major constraint on domestic investment and growth, has come to the lore once again. The unprecedented levels to which interest rates on government burrowing have been pushed up will further aggravate the government's internal debt problem. The attempt to augment liquidity by allowing corporate bodies to place their GDR proceeds with local banks, apart from coming up against a series of operational hurdles, is patently ill-advised because indirectly the government would be using foreign capital inflows to finance its revenue deficit.

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