The central government’s total market borrowings requirements have jumped by a whopping 53 per cent to Rs 12 lakh crore in the current fiscal, as falling revenues and rising expenses led to a sharp deterioration in the government’s fiscal position. This indicates the Centre’s fiscal deficit for the 2020-21 could spurt to 5.5 per cent of GDP, a sharp jump of 2 percentage points from the target of 3.5 per cent, according to market analysts. The Finance Ministry, in consultation with the Reserve Bank of India (RBI), on Friday revised its borrowing calendar for the rest of the financial year.
“The estimated gross market borrowing in the financial year 2020-21 will be Rs 12 lakh crore in place of Rs 7.80 lakh crore as per BE 2020-21 (Budget Estimates). The above revision in borrowings has been necessitated on account of the COVID-19 pandemic,” the Ministry said in a statement.
Rising borrowings are expected to put pressure on the bond market, crowding out resources for the private sector. The fiscal deficit is set to shoot up sharply, indicating that the government has limited space to push through a massive fiscal stimulus to protect the economy from adverse effects of COVID-19.
“Given that the fiscal deficit was to be Rs 8 lakh crore for FY21, this increase of Rs 4.2 lakh crore will under unchanged conditions mean a fiscal deficit ratio of around 5.5 per cent from 3.5 per cent targeted earlier,” CARE Ratings said in a statement.
“… there are clear signs of government finances being affected by the shutdown as revenue has ebbed and expenditure pressure will be there through the year even after the lockdown is withdrawn. A takeaway is that this also means that presently there is no intention of RBI lending directly to the government,” it said.
Starting Monday, the Centre will be borrowing Rs 30,000 crore per week each week till September 25, as per the revised calendar, which is sharply higher than Rs 19,000-21,000 crore planned earlier when the borrowing calendar for April-September was released on March 31, 2020.
Due to the shutdown of the economy, the government is expected to face sharp shortfall in its net targeted tax revenues of Rs 16.36 lakh crore budgeted for the current fiscal. A slump in the stock markets from the record high levels will make it difficult to raise funds through stake sale in state-owned companies.
The Centre has targeted Rs 2.1 lakh crore through divestment this year. On the other side, expenditure will spike as the government recently announced Rs 1.7 lakh crore of relief, including income transfer and support measures for the poor.
Higher borrowings are likely to push up bond yields, unless open market operations (OMOs) or other instruments are deployed by the RBI. The yield on benchmark 6.45 per cent bond maturing in 2029 was 5.97 per cent, lowest since January 27, 2009, as against 6.03 per cent on Thursday.
Aditi Nayar, principal economist, ICRA, said, “The upward revision in the GoI’s borrowings for the remainder of FY2021, although sharp, was inevitable given the estimated extent of revenue loss following the lockdowns related to the COVID-19 pandemic.”
“However, less pressure on expenditure compression to offset the expected revenue shortfall would allow economic activity to display some semblance of recovery in the latter part of this fiscal year,” Nayar said.
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