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The Finance Ministry and the Reserve Bank of India (RBI) will meet on Monday (March 30) to fix the quantum of government’s borrowing during first six months of FY2020-21 starting April 1.
Gross borrowing for FY21 has been estimated at ₹7.80 lakh crore, as against the ₹7.10 lakh crore during 2019-20. Total net borrowings in 2020-21 are projected at ₹7,96,337 crore, as compared to ₹ 7,66,848 crore (RE) in 2019-20.
The government borrows from the market to bridge the gap between its expenditure and earning. Borrowing is done through government securities (G-Sec), which are tradeable instruments issued by the Central or State governments. They acknowledge the government’s debt obligation. Such securities are short term (usually called treasury bills, with original maturities of less than one year) or long term (usually called government bonds or dated securities with original maturity of one year or more).
In India, the Central government issues both, treasury bills and bonds/dated securities while the State governments issue only the latter, which are called the State Development Loans (SDLs). G-Secs carry practically no risk of default, and are hence called risk-free gilt-edged instruments.
The government uses T-Bills for correcting the cash flow mismatch while dated securities or bonds are used as part of borrowing.
Heavy reliance on borrowing
On Monday, the market would be eager to know what would be quantum of bonds to be issued by the RBI and when. Normally, borrowing is front-loaded during the first half and is usually between 60-65 per cent of total borrowing.
Considering the disruptions due to Covid-19, the expectation is that front-loading will be much higher. Since funds through tax receipts and disinvestment are likely to be much below the expectation, the government will rely heavily on borrowings. Also, with some relief measures already announced and many more in pipeline, there is expectation of higher borrowing through dated securities.
In 2019-20, gross and net market borrowing by the Government of India (GoI) through dated securities, excluding buyback/switches, were budgeted at ₹7,10,000 crore and ₹4,73,972 crore, respectively. Actual gross and net market borrowings through nine dated securities during 2018-19 stood at ₹5,71,000 crore and ₹4,22,735 crore, respectively.
Net market borrowings through dated securities were budgeted to finance 60.12 per cent of the gross fiscal deficit (BE) in 2019-20. Other sources such as net borrowing from treasury bills, the NSSF, the State provident fund, net external assistance and cash draw-down were budgeted to finance the remaining 39.88 per cent of the GFD.
Market borrowing for the first half was kept around 62.25 per cent (at ₹4,42,000 crore) of the gross market borrowing for FY 2019-20. In the second half, it was kept at ₹2,68,000 crore, representing 37.75 per cent of the budgeted gross market borrowing.
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