The government on Monday announced that it will borrow ₹2.68 lakh crore during the second half of the current fiscal, beginning October 1. It also made it clear that there will be no change in the fiscal deficit target for now.
Meanwhile, the fiscal deficit for the first five months (April-August) has been nearly 79 per cent of the Budget Estimate of ₹7.03 lakh crore. Normally, borrowing is front-loaded during the first half, and hence, it is less in the second half. Accordingly, the second half borrowing will be ₹2.68 lakh crore or 37.75 per cent of the Budget Estimate. First-half borrowing was at ₹4.42 lakh crore or 62.25 per cent.
“The fiscal glide path, as proposed in the Budget, is to be maintained,” Economic Affairs Secretary Atanu Chakraborty told reporters here after a meeting between the government and the Reserve Bank of India. The borrowing will be done in 17 weekly auctions, with ₹16,000 crore per week in 15 auctions and ₹14,000 crore per week in last two auctions.
Bonds with maturities of 1-4 years will account for 6.72 per cent of overall issuance of bond, while those with maturity period of 5-9 years, 10-14 years, 15-24 years and more than 25 years will account for 17.91 per cent, 40.67 per cent, 9.33 per cent and 25.37 per cent respectively. Such bonds carry an interest rate which is paid at the end of maturity. The minimum maturity period is one year, while the maximum could be 40 years.
The Secretary also said borrowing through treasury bills (an instrument without interest rate, issued at discount and paid in full at the time of maturity) has been planned in such a way as to result in net outflows of ₹20,000 crore during the third quarter (October-December) of the current fiscal. The maturity period of such an instrument is less than one year.
When asked about bonds to be issued in the overseas market for borrowing, the Secretary said work is on, but did not give any timeline. “At present, the borrowing will be in domestic currency only,” he said.
Fiscal deficit in five months
Meanwhile, the fiscal deficit for the first five months of the current fiscal touched 78.7 per cent of the Budget Estimate as against 94.7 per cent of the Budget Estimate for the corresponding period of last fiscal.
The government has set a target of limiting the fiscal gap to 3.3 per cent of the GDP for the current fiscal. With the reduction of corporate tax and less-than-expected revenue from the GST, there is a doubt over meeting this target. However, Finance Minister Nirmala Sitharaman has repeatedly said that she would consider all the issues at the time of finalising the revised Budget Estimate.
Transfer from RBI
Aditi Nayar, Principal Economist at ICRA, said benefiting from the transfer of funds from the RBI, which has helped to shore up non-tax revenues, the government's fiscal deficit declined by 6.3 per cent on a YoY basis to ₹5.5 lakh crore in April-August 2019 from ₹5.9 lakh crore in the same months of FY2018.
However, “the pace of net tax revenue growth slowed considerably to 10.5 per cent at the end of August 2019 from 15.8 per cent at the end of July 2019, which appears to have partly been led by the settlement of IGST balances,” she said.