NEW DELHI: The Centre on Friday raised its gross borrowing target sharply for the financial year 2020-21 from Rs 7.8 lakh crore to Rs 12 lakh crore, to deal with the economic fallout of the coronavirus outbreak.
“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. The above revision in borrowings has been necessitated on account of the COVID-19 pandemic,” the finance ministry said in a circular issued on Friday.
It added that the increase was decided in consultation with the Reserve Bank of India and can be revised from time to time. Analysts said enhanced borrowings were meant to bridge the revenue shortfall and provide for the economic stimulus being planned by the government.
“The government needs to cover for the stimulus they are planning, besides shortfall in revenue – both taxes and other streams of revenue such as disinvestment. In fact, we feel even if expenses are curtailed, this increase in borrowing may not cover everything,” said N R Bhanumurthy, Professor at the National Institute of Public Finance & Policy.
Industry chambers have been demanding Rs 10-15 lakh crore as stimulus after several research organisations predicted India might grow either at a flat rate or slip into negative territory. “We will have more clarity (on the total borrowing) once the second borrowing calendar is announced in the next half of the year,” Bhanumurthy added.
The extra borrowing will also inflate the country’s fiscal deficit target, which was pegged at 3.5% of GDP in the budget.
“Though Rs 4.2 lakh crore extra borrowing would translate to 1.8% added to the fiscal number, if the government compresses expenditure, as is expected then the actual deficit, could well be contained at 4.5% or so,” say officials.
However, calculations of the fiscal deficit ratio was on the basis of a growing economy. If the economy contracts or even merely grows at 0%, the fiscal numbers could look worse.
"The Centre did not provide any extra details on the funding of the deficit or whether the RBI would also participate by buying government bonds. The upward revision in the government’s borrowings for the remainder of the current financial year, although sharp, was inevitable given the estimated extent of revenue loss following the lockdowns related to the Covid-19 pandemic,” said Aditi Nayar, principal economist at ICRA.
The revised borrowing calendar for the first half reveals the government will borrow Rs 6 lakh crore.
