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

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have emerged. This has happened because the pattern of Financing of the centre's fiscal deficit has undergone a radical change. The government had been compelled by the performance criteria for the standby borrowing arrangement with the IMF to slash its fiscal deficit from 8.33 percent of GDP in 1990-91 to 5.90 per cent and 5.72 per cent in the first two years of the reforms respectively. Net market borrowings which, at Rs 8,001 crore, had constituted 18 per cent of the gross fiscal deficit (GFD) or 1.5 per cent of GDP in 1990-91, were brought down to Rs 3,676 crore or 9 per cent of GFD and 0.5 per cent of GDPin 1991 -92. By then large reductions in union excise and customs duties had been effected as part of fiscal reform, whereas government expenditures could not be reduced beyond a point. As a result the fiscal deficit rose in 1993-94 to Rs 60,257 crore or 7.7 percent of GDP from Rs 40,173 crore or 5.7 per cent of GDPin 1992-93, for financing which net market borrowings had to be pushed up from Rs 3,676 crore to Rs 28,537 crore (47.4 percent of GFD and 3.6 per cent of GDP), or some eight-fold in a single year. Since then net market borrowings have remained stubbornly high. A government which had borrowed about Rs 5,000 crore (0.5 per cent of GDP) in 1992-93 was now making demands on the market of over Rs 27,500 crore or 2.5 per cent of GDP. Initially, this order of government borrowing could be accommodated because there was an abundance of liquidity as a result of the large foreign portfolio inflows, but when these inflows dried up it caused serious distortions in the financial system.

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