NEW DELHI: The government kept its gross borrowing target for FY21 unchanged at Rs 12 lakh crore, counting on a pick-up in tax revenues to meet any need for a stimulus to support the economy. In the second half of the fiscal, the Centre will borrow Rs 4.34 lakh crore, the balance left over from the revised Rs 12 lakh crore gross market borrowing announced in May.
The government had budgeted gross Rs 7.8 lakh crore market borrowing in the February budget for FY21 but was forced to raise it by over 50 per cent to meet additional spending due to the Covid-19 pandemic and loss of tax revenues because of the lockdown and subsequent localised shutdowns. Meanwhile, data released on Wednesday showed the Centre’s fiscal deficit at Rs 8.7 lakh crore at the end of August, 9.3 per cent more than the Rs 7.96 lakh crore provided in the budget for the full year. “Since the opening up of the economy from June onwards, there has been an improvement in the revenues,” economic affairs secretary Tarun Bajaj said, explaining the decision to stick with the borrowing plan.
Big Stimulus Unlikely: Experts
“Also, the expenditure prioritisation was done and there has been some increase in expenditure in some areas, while we have been able to ensure that the other expenditure which could have been avoided is avoided,” Bajaj said.
India imposed a lockdown on March 25 that was eased in stages starting May. States began imposing shutdowns in July to try and curb localised outbreaks.
Experts said the decision to keep borrowing unchanged indicates that the government may not be planning a big stimulus as of now. “The expectations of further fiscal support to prop up the arduous recovery should be tempered, in our view,” said Aditi Nayar, principal economist, ICRA.
There may be no new stimulus involving additional expenditure, said Madan Sabnavis, chief economist, Care Ratings.
In an interview to ET on Wednesday, FM Nirmala Sitharaman had said the government was looking at ways in which it can provide further support.
Experts have argued that once pent-up demand is exhausted, the economy may need a big fiscal boost. “Some stimulus is needed as demand has collapsed,” said DK Pant, chief economist, Ind-Ratings.
There was no indication the government may embark on monetisation to fund a big fiscal stimulus. “I have come out with my cards… we need Rs 12 lakh crore. We have said we are borrowing Rs 12 lakh crore,” Bajaj said when asked if the government was open to debt monetisation. The Rs 12 lakh crore is expected to be sufficient for the central government to carry on its activities until March 31, 2021, Bajaj said.
The government had in March announced a Rs 1.7 lakh crore fiscal support package immediately after imposing a lockdown to contain the pandemic and followed it up with the Rs 20 lakh crore Atmanirbhar (self-reliance) package in May. The fiscal support component was small at about 1 per cent of GDP, or Rs 2 lakh crore.
Second-half borrowing will be completed by the end of January, as has been the practice in the past. “With the opening up of the economy and with further activities on the economic front, we also expect that in the third and fourth quarter, the private sector, we assume, will show more activity and that period has also been kept for them to borrow money from the market,” Bajaj said.
The ways and means advance limit that was raised to Rs 2 lakh crore in May has been lowered to Rs 1.24 lakh crore in consultation with the RBI, another indication of rising fiscal comfort.
The government raised 63.83 per cent of total borrowing for FY21 in the first half at an average weighted yield of 5.82 per cent, the lowest in 15 years. Bajaj said he expected similar yields in the second half. All the auctions covered by the calendar will have the facility of the non-competitive bidding scheme under which 5 per cent of the notified amount will be reserved for specified retail investors, the ministry said in a statement. The weekly borrowing is seen at Rs 27,000 crore. The RBI has a green shoe option to retain additional subscription of up to Rs 2,000 crore.