The Finance Ministry on Monday pegged the government borrowing for the second half of 2021-22 at ₹5.03-lakh crore.

The buoyancy in tax collections so far in the current fiscal has played a key factor in ensuring that overall borrowing will be lower this year, say economy watchers. For the full fiscal year, the gross market borrowing may not go beyond the ₹12.05-lakh crore projected in the Union Budget. In the first half of this fiscal, the government had planned to borrow ₹7.24-lakh crore, but the effective borrowing was ₹7.02 lakh crore. The government now plans to borrow the balance ₹5.03-lakh crore in the second half year.

Bond market cheer

And, in what could bring short-term cheer to the bond market is the Finance Ministry’s announcement that the second half projection factors in the requirement for release of the balance amount to States on account of back-to-back loan facility in-lieu of GST compensation during the year.

A back-of-the-envelope calculation shows that the proposed ₹5.03-lakh-crore borrowing would include ₹84,000 crore for GST compensation payment. It may be recalled that the total borrowings of the Centre for GST compensation and extending back-to-back loans to States for the current fiscal were pegged at ₹1.59-lakh crore. Out of that ₹75,000 crore has already been borrowed. The remaining ₹84,000 crore will get factored into the proposed second-half borrowing target, say experts.

Fiscal deficit ‘will dip’

Aditi Nayar, Chief Economist, ICRA, said the the second half borrowing calendar provides a positive surprise, as while the amount is in line with the Budget, it has absorbed the back-to-back GST compensation loan to be provided to the States. “The implication is that the GoI's fiscal deficit will be around ₹1.6 trillion lower than budgeted, despite the modest rise in expenditure, a clear confirmation of the revenue upturn that is underway.” This also suggests that the government’s disinvestment programme is seen to be on track, she said.

Madan Sabnavis, Chief Economist, CARE Ratings, said the overall borrowing will not increase this year. “As it includes ₹1.55-lakh crore of State compensation it means the overall borrowing will be lower this year. Bond yields should cool. However, this makes a heroic assumption on the disinvestment target being achieved and more. This can be the critical factor,” he said.

Rahul Bajoria, Chief Economist, Barclays India, said that borrowing plan looks broadly in line with levels indicated in the levels Budget, and “we believe that while the revenue position remains buoyant, the government may only take a call on their final deficit and borrowing requirements in the last quarter of the fiscal year.”

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