India’s borrowing target now raised to Rs 12 lakh crores
From the estimated amount in the budget of 7.8 lakh crores, the government has increased the gross market borrowing target to Rs 12 lakh crores for the financial year 2020-21. It attributes nearly 54% increase to deal with the problem of illiquidity during the economic crisis due to corona virus pandemic.
The government issued a circular on 8th May 2020, which said that the gross borrowing target has been raised from the budgeted Rs 7.8 lakh crores to Rs 12 lakh crores. In a statement given on Friday, the Finance ministry said that an increase in the borrowing targets has been done after consultations with the RBI and has been inevitable during this covid-19 pandemic crisis.
Increase in budgeted borrowings:
A few days ago, a package worth Rs 1.7 lakh crores was announced. It is expected that there will be additional packages and programs introduced in the days ahead to have fiscal support. This is because of the expected reduction in the tax revenue from the lock down. It is expected that the revenue shortfall would be same as the additional borrowings of Rs. 4.2 lakh crores in this financial year. The recent surge in the fuel prices will generate an additional Rs 1.4 lakh crores but still cannot reduce the revenue shortfall.
A senior government official communicated with the media that there will definitely be a revenue shortfall in this financial year. It is because many of the industries are shut down amid lock down in the month of April. For now, they are focusing on the expenditure side. If the situation improves in the second half of the year, then the government will scale down the estimated borrowings. He added that the RBI has not taken any call for monetizing the deficit. A stimulus package will be announced very soon and the government is working on it.
The government plans to borrow an amount of Rs 7 lakh crores in the first half of this financial year than the earlier of plan of Rs. 4.88 lakh crores. So it means that the government can borrow at the most Rs 6 lakh crores by the end of September. The government can borrow an average of Rs 30,000 crores per week according to the current plan as compared to the earlier plan of borrowing Rs 19,000 – 21,000 crores. This will leave a balance of Rs 5 lakh crores which can be borrowed in the second half then the earlier plan of Rs 2.92 lakh crores.
Benefits of additional borrowings:
The additional market borrowings would lead to an increase in the bond yields and would also ensure adequate liquidity in this system. According to the report given by finance ministry, the surplus liquidity in the banking system is Rs 6.07 lakh crores currently.