The Government’s estimated gross market borrowing in the financial year 2020-21 will jump to ₹12 lakh crore against ₹7.80 lakh crore estimated in the budget on account of the COVID-19 pandemic, the Reserve Bank of India (RBI) said in a statement.

As per the revised calendar, the government will borrow Rs 6 lakh crore from May 11, 2020 to September 30, 2020 through issuance of Government Securities (GSecs). Since the beginning of this fiscal, the government has borrowed Rs 98,000 crore via GSecs so far.

So, in the first half of FY2021, the government’s borrowing programme has increased to Rs 6.98 lakh crore against the original Rs 4.88 lakh crore. Experts say with the health and social sector spending to tackle the COVID-19 pandemic expected to increase significantly, the government has no choice but to borrow more.

“After reviewing the cash position and requirements of the Central Government, Government of India in consultation with the Reserve Bank of India, has decided to modify the indicative calendar for issuance of Government dated securities for the remaining part of the first half of the fiscal 2020-21 (May 11 - Sept 30, 2020),” the Reserve Bank of India said in a statement.

The revised calendar will see the government borrowing Rs 30,000 crore on an average every week in the remaining period of the first half of FY21 against Rs 19,000-21,000 crore on an average as per the earlier calendar.

“The Reserve Bank of India, in consultation with the Government of India, reserves the right to exercise the green-shoe option to retain additional subscription up to ₹2,000 crore each against any one or more of the above security, which will be indicated in the auction notification.,” the statement said.

On March 31, when the calendar was announced, the RBI had also mentioned that 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. But in the latest statement this line is missing, implying that the government can borrow over the overall notified amount for the auction.

With ample liquidity in the banking system and lack of demand for credit, this increased borrowing programme will sail through.

Aditi Nayar, Principal Economist, ICRA, said the upward revision in the government’s borrowings for the remainder of FY2021, although sharp, was inevitable given the estimated extent of revenue loss following the lockdowns related to the Covid-19 pandemic.

“Higher borrowings are likely to push up yields, unless OMOs (open market operations) or other instruments are deployed by the RBI to absorb a part of the higher issuance, and crowd out borrowings by state governments and corporates.

“However, less pressure on expenditure compression to offset the expected revenue shortfall, would allow economic activity to display some semblance of recovery in the latter part of this fiscal year,” she added.

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