NEW DELHI: The central government has raised Rs 7.4 lakh crore so far this year, which is 81 per cent higher than the corresponding period last year and 61 per cent of the revised central government market borrowing limit of Rs 12 lakh crore for the ongoing financial year. Even as the split of gross borrowing between the two halves is slightly lower than that of last year, the figure has exceeded the Centre's own revised estimate for the first half of fiscal 2020 (H1 FY21) --- around Rs 7 lakh crore, leaving little space for the most-hoped second fiscal stimulus.
According to the latest data from the Reserve Bank of India (RBI), the government has raised Rs 30,000 crore in the open market for four consecutive weeks up to September 18.
So far this year, there have been 17 auctions wherein the actual amount was greater than the notified amount aggregating Rs 66,000 crore.
The highest amount borrowed so far was in July (Rs. 1.7 lakh crore). In April, the government raised Rs. 83,000 crore, while May, June and August saw borrowings at around Rs. 1.3 lakh crore.
Economists say that the current trend of unglamorous tax collection and the clamour for a fresh fiscal stimulus coupled with a slow and protracted economic recovery indicate that even the increased borrowing target may not be sufficient.
Worryingly, the revenue is creaking but of course, the Centre can borrow more if the situation necessitates offsetting the higher expenditure.
But, the question is how to constructively utilise the borrowed funds.
“As the exit phase begins, the policy should pivot toward supporting the recovery. On the demand side, this may require further fiscal support clearly for India. On the supply side, this implies putting gradually more emphasis on backing up productive jobs and viable companies while beginning to phase out schemes that do not serve any purpose,” explained Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India.
However, there is no salvaging the fiscal situation given the breach in FY20. India's fiscal deficit had already overshot the budget estimate to hit Rs 8.2 lakh crore, or 103 per cent, in just the first four months after the Covid-19-induced lockdown hurt revenue flows, as against 78 per cent last year.
To budget for the additional expenditure needed to power its Rs. 21 lakh crore Covid-19 relief package, the Centre plans to spend an additional Rs 1.67 lakh crore for FY21.
“The financial position of the government would continue to be strained for the remaining three quarters. There will be an overall increase in borrowing, but there is enough liquidity in the system. The Rs 1.67 lakh crore borrowing, if comes though, will increase the FY21 fiscal deficit by around 0.8 per cent of GDP. About Rs 47,000 crore for financing the state deficit was not part of the package and would involve additional money. We expect the fiscal deficit to be 8-8.5 per cent of GDP this year allowing for all these expenses,” said Madan Sabnavis, chief economist at Care Ratings.
While deficits have to be incurred to avert the damage caused by the pandemic that has affected the entire globe, the future worry will be to service the unsustainable levels of public debt.
Currently, the debt is estimated at 72 per cent of GDP, which is feared to rise to 85 per cent. A study by the World Bank found that if the debt-to-GDP ratio of a country exceeds 77 per cent for an extended period of time, it slows economic growth.