Government retains ₹12-lakh-crore borrowing plan

In first 5 months of fiscal, deficit surges to 109% of year’s target; ‘economic activity likely to rise in H2’

India’s fiscal deficit soared to 109% of the Budget target in just the first five months of the year, with revenues remaining muted. However, the Centre stuck to its ₹12 lakh crore borrowing plan for the year with the Finance Ministry exuding confidence that it would manage to meet its expenditure commitments within this plan.

The Centre had already enhanced its borrowing target for the year by ₹4.2 lakh crore to ₹12 lakh crore in May this year as the initial adverse impact of the COVID-19 pandemic and the national lockdown became apparent.

The government has borrowed ₹7.66 lakh crore in the first half of the fiscal and plans to borrow the remaining ₹4.34 lakh crore between October 2020 and January 2021, Economic Affairs Secretary Tarun Bajaj said on Wednesday. The borrowing was done at a weighted rate of 5.82%, the lowest in the last 15 years, he said.

“Based on our estimates of revenues… revenues are looking up, keeping in mind the expenditure and keeping some space for some unforeseen items, we anticipate that the ₹12 lakh crore should suffice till the end of the year,” Mr Bajaj said.

The government is leaving some room for States who also have to do ‘major borrowings’ as well as the private sector to raise money in the second half of the year. “With the opening up of the economy… we are expecting to see more activity from the private sector in the third and fourth quarters,” he said.

‘Deficit may still grow’

Revenue collections were largely to blame for the fiscal deficit hitting ₹8.70 lakh crore compared to the target of ₹7.96 lakh crore, as tax revenue declined across the board. Rating agencies expect the fiscal deficit slippage to be much higher by the end of the year.

Aditi Nayar, principal economist at ICRA, reckoned that the deficit will rise to ₹14 lakh crore and the Centre would have to scale up its borrowings by at least ₹1.1 lakh crore, even if no further fiscal support measures were announced.

Care Ratings chief economist Madan Sabnavis agreed that fiscal slippage would be quite wide. “We expect central government deficit to be in the region of 9% this year. This is notwithstanding the fact that there may be no new stimulus involving additional expenditure,” he said.

Budget 2020-21 had set a fiscal deficit target of 3.5% of GDP.

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