The Union government sharply raised its gross borrowing programme for this fiscal from the budgeted Rs 7.8 lakh crore to Rs 12 lakh crore, signalling a major slippage in fiscal deficit amid rising pressures on both revenue and expenditure because of the Covid-19 pandemic.
The “revision in borrowings has been necessitated on account of the Covid-19 pandemic”, the Reserve Bank of India (RBI) said on Friday.
The government will front-load its borrowing programme by issuing securities worth Rs 4.88 lakh crore or 62.56% of its gross borrowing target for FY21 in the fiscal first half, former economic affairs secretary Atanu Chakraborty had said on March 31 while unveiling the borrowing calendar for FY21. On Friday, RBI said the government will borrow Rs 6 lakh crore for the remainder of the fiscal’s first half.
The countrywide lockdown aimed at curbing the spread of Covid-19 and considered the severest in the world, has led to a sudden halt in business activity with both manufacturing and services PMIs plummeting to record lows in April. This is likely to hit the government’s revenue collections at a time when demand for resources to fight the pandemic is rising. The government is contemplating the size and nature of a stimulus package for the economy, including the source of financing, to stem the massive job losses.
The upward revision in the borrowings programme, though sharp, was inevitable given the estimated extent of revenue loss because of the lockdown, said Aditi Nayar, principal economist at Care Ratings. “Higher borrowings are likely to push up yields, unless open market operations or other instruments are deployed by RBI to absorb a part of the higher issuance and crowd out borrowings by state governments and corporates. However, less pressure on expenditure compression to offset expected revenue shortfall would allow economic activity to display a semblance of recovery in the latter part of this fiscal,” she said.
The increase in the gross borrowing programme could push up fiscal deficit to 5.5% of gross domestic product (GDP) in FY21 from the budgeted 3.5% of GDP, said Madan Sabnavis, chief economist, Care Ratings.