New Delhi: The Finance Ministry on Wednesday said the government will borrow Rs 4.34 lakh crore in the second half of the current fiscal to meet its expenditure requirement amid the COVID-19 crisis afflicting the country’s economy.
With this, the government will stick to the revised borrowing target for the current fiscal. The Centre had revised the borrowing target to Rs 12 lakh crore in May against Rs 7.8 lakh crore approved in the Budget 2020-21.
“Out of this Rs 12 lakh crore, we have already borrowed Rs 7.66 lakh crore, which constitutes 63.83 percent of the total borrowing that was envisaged at the beginning of the year that is May. This Rs 7.66 lakh crore also includes Rs 68,000 crore as the greenshoe option, which was taken up by the central government,” Economic Affairs Secretary Tarun Bajaj said.
He further said the first half borrowing happened at the weighted borrowing cost of 5.82 percent, the lowest in 15 years.
“Keeping all this in view and anticipating what would happen in the coming half year, we have decided to continue with the same figure of 12 lakh crore as our borrowing for the total year, which basically means that borrowing for the second half of the year would be 4.34 lakh crore. This is 36.16 percent of the total borrowing”Bajaj said
The borrowing will be done in 16 weekly auctions at Rs 27,000-28,000 crore per week and the tenures will be the same as the first half of 2 years, 5 years, 10 years, 14 years, 30 years, and 40 years.
Observing that the major portion of the first quarter was under lockdown, Bajaj said there was an impact on the revenues and that was the reason, the government had increased the borrowing limit in May.
“However, since the opening up of the economy from June onwards, there has been an improvement in the revenues. Also, the expenditure prioritization 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,” he said.
The government had envisaged raising 58 percent of the total borrowing target of Rs 6.98 lakh crore from the dated securities in the first half of the current fiscal. Against this, the government has borrowed Rs 7.66 lakh crore during April-September.
The government raises money from the market to fund its fiscal deficit through dated securities and treasury bills.
The Budget has pegged fiscal deficit at 3.5 percent for the current fiscal, down from 3.8 percent of the GDP in the last financial year.
Last fiscal, the government had to resort to the “escape clause” in the Fiscal Responsibility and Budget Management (FRBM) Act for deviating from the fiscal deficit target to 3.8 percent from the Budget estimate of 3.3 percent for 2019-20.
The “escape clause” allows the government to breach its fiscal deficit target by 0.5 percentage points at times of severe stress in the economy, including periods of structural change and those when growth falls sharply.
About deviation from the fiscal deficit target, he said the FRBM has a provision that permits deviation in certain circumstances.
“We have to lay down a statement in Parliament which we will do and that is how we are actually borrowing more than what we had planned in the Budget Estimate and what the target mentioned in the FRBM Act,” Bajaj said without giving revised fiscal deficit target number.
When asked if the Finance Ministry has also taken into consideration further stimulus package while fixing the second-half borrowing calendar, the secretary said the government has factored in all unexpected development and there is no need to revise the target upward at the moment given the position of revenue collection.
“Based on the way revenue is coming and some extra revenue mobilized, we will manage within the target,” he said.
Earlier this week, Finance Minister Nirmala Sitharaman had said that she is open to one more stimulus if necessary.
To help generate sufficient space to manage the borrowing program of the state governments smoothly, he said the second-half borrowing program of the Centre is expected to be completed by January 2021.
The secretary further said he expects similar yields in the second half as well.
Asked if the government is open to monetization of debt, Bajaj said, “I have come out with my cards…we need Rs 12 lakh crore. We told we are borrowing Rs 12 lakh crore”.
The Finance Ministry in a statement later said all the auctions covered by the second-half borrowing calendar will have the facility of non-competitive bidding scheme under which 5 percent of the notified amount will be reserved for the specified retail investors.
“Like in the past, the RBI in consultation with the Government, will continue to have the flexibility to bring about modifications in the calendar in terms of notified amount, maturities, etc. and to issue different types of instruments, including Floating Rate Bonds (FRBs), including CPI linked inflation-linked bonds, depending upon the requirement of the Union government, evolving market conditions, and other relevant factors,” it added.
The RBI reserves the right to exercise the green-shoe option to retain an additional subscription up to Rs 2,000 crore each against any one or more of the above security, which will be indicated in the auction notification.
However, the statement said the exercise of the green-shoe option within one or more securities in an auction shall be within the overall notified amount for the auction.