The Centre's interest payments are projected to rise 7.5 per cent to Rs 1,29,500 crore (Rs 1,295 billion) during 2004-05 compared to Rs 1,20,475 crore (Rs 1,204.75 billion) in the revised estimates for the current fiscal.

The government has, however, managed to save Rs 2,748 crore (Rs 27.48 billion) in its interest payments during the current fiscal on account of softening of interest rates and also due to the premium it earned by reissuing government securities at lower coupons.

As a result of these savings, interest outgo would decrease 2.28 per cent to Rs 1,20,475 crore (Rs 1,204.75 billion) (RE) as against Rs 1,23,223 crore (Rs 1,232.23 billion) in the budget estimates for 2003-04.

Though government borrowings are increasing, the Centre has managed to keep a check on interest on debt raised by it due to falling interest rates.

The average borrowing cost during the current fiscal is estimated at 5.74 per cent compared to 7.34 per cent in 2002-03, 9.44 per cent in 2001-02, 10.95 per cent in 2000-01 and 11.77 per cent in 1999-2000.

The Reserve Bank of India has already expressed its intention of maintaining a soft interest bias and banks expect interest rates to fall further over the next few months.

While the government has retired some high-cost domestic debt through pre-payment, on the external debt front too, loans of over $6 billion were pre-paid during the last two financial years.

Under the debt-swap scheme with state governments, loans amounting to over Rs 46,000 crore (Rs 460 billion), and with an interest rate of over 13 per cent, were swapped in 2003-04 for lower coupon bonds.

Interest payments as a percentage of the Centre's total expenditure is, however, projected to grow to 28.31 per cent during 2004-05 compared to 25.40 per cent in the revised estimates for the current fiscal.

So, despite the savings in nominal terms, high interest payments continue to remain a problem. The 7.5 per cent rise in the government's interest payments during the next fiscal is due to its continued dependence on debt resources to finance its expenditure.

The Centre's market borrowings are projected to grow 9.06 per cent to Rs 90,502 crore (Rs 905.02 billion) during 2004-05, compared to Rs 82,982 crore (Rs 829.82 billion) in the revised estimates for the current fiscal.

The growth in interest payments projected during the next fiscal is in line with the compounded annual growth rate of 7.53 per cent for the period beginning 1998-99, when the Atal Bihari Vajpayee government presented its first budget, and 2004-05, for which an interim budget was presented on Tuesday.

The Centre's interest outgo during 1998-99 was Rs 77,882 crore (Rs 778.82 billion) which rose to Rs 90,249 crore (Rs 902.49 billion) in 1999-2000 and Rs 99,314 crore (Rs 993.14 billion) in 2000-01 and Rs 1,07,460 crore (Rs 1,074.60 billion) in 2001-02 and Rs 1,17,804 crore (Rs 1,178.04 billion) in 2002-03.

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