The government Tuesday increased the ceiling on its temporary loan facility with the Reserve Bank of India — known as Ways and Means Advance (WMA) — by 60 per cent to tide over the cash flow mismatch in FY21 expected from higher spending to combat the spread of COVID-19. Announcing the government’s borrowing plan for April-September period, Department of Economic Affairs (DEA) Secretary Atanu Chakraborty said the “WMA limit is proposed to be revised to Rs 1.20 lakh crore and would be reviewed on a need basis (from Rs 75,000 crore last year).”
Answering a query on whether the Centre will issue securities directly to the RBI to finance COVID-19 related extra spending, he said: “Certainly, that’s not in the borrowing plan.” The WMA facility enables the government to take a temporary short term loan from the central bank, mainly to address the mismatch between its inflow of revenues and outflow of expenditure. A higher limit provides the government flexibility to raise funds from RBI without borrowing them from the market.
The government will do “whatever is required” for poor and vulnerable sections and for the resurgence of the industry, Chakraborty said, without specifying whether the fiscal deficit target for 2020-21 will be breached or not. The government has announced a Rs 1.7 lakh crore package to provide income support, free food and other facilities to the poor to help them during the 21-day national lockdown.
“The packages, three announced already, are all along that lines. Therefore, our fundraising resources — not only from market but also from multilateral institutions and our end — are all geared towards that end.”
Out of gross borrowings of Rs 7.8 lakh crore in FY21, the Centre has proposed to borrow Rs 4.88 lakh crore, or 62.56 per cent, in the first half of the fiscal, as against 62.25 per cent done in the previous fiscal. The Budget 2020-21 has pegged the Centre’s net market borrowing — including government securities, treasury bills and post office life insurance fund — at Rs 5.36 lakh crore.
When asked if the government has taken into account need of a stimulus in the upcoming fiscal, the DEA Secretary said, “The borrowing plan essentially takes care of the requirement of the cash flow of the government on account of the expenditure that had already been planned, and also anticipated, and some with certain level of probability, and therefore borrowing plan captures that certainly.”
In FY21, the Centre also plans to issue the debt exchange traded fund (ETF) comprising of government securities to widen the base of investors. “The Budget announcement related to debt ETF would be operationalised during second half,” Chakraborty added.
This will enable retail investors, who otherwise find it difficult to buy government bonds directly, take an exposure in this risk free instrument.
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