Centre keeps borrowing limit unchanged for FY21
The Union government has kept its borrowing limit unchanged at Rs 12 lakh crore for 2020-21, which also factors in the possibility of a second stimulus package, a top finance ministry official said on Wednesday.
The government has already borrowed Rs 7.66 lakh crore, about 64% of the limit in the first half of current financial year at a borrowing cost of 5.82% and plans to borrow remaining Rs 4.34 lakh crore via bonds by January 2021, economic affairs secretary Tarun Bajaj said.
Referring to finance minister Nirmala Sitharaman’s statement regarding a possible second stimulus, Bajaj said in Hindi: “If any such requirement comes, we have factored it in.”
“I am open to one more support if necessary. We are constantly exchanging a lot of thoughts with industry... One more may be needed is what we are hearing from the people who interact with us, and we are trying to see what it is that we can do. There’s no point in me hurriedly getting something out,” Sitharaman told HT in an interview published on Tuesday.
Many want a second stimulus to boost the sagging economy immediately. The first stimulus of Rs 20.97 lakh crore was announced by the government through a series of announcements between March and May that included fiscal and monetary incentives and a Rs 1.7 lakh crore relief package for the poor.
The latest edition of consultancy firm EY India’s Economy Watch said that a second stimulus is a must. “It is clear that in order to reverse the adverse growth trend in sectors such as public administration, defence and other services, and construction, a second round of stimulus is immediately called for.”
India’s gross domestic product (GDP) growth in the first quarter of 2020-21 contracted steeply to 23.9% mainly because of a sharp decline in various economic activities such as mining [-23.3%], manufacturing [-39.3%], construction [-50.3%], trade, hotels, transport and communication [-47%] , financial, real estate and professional services [-5.3%] and public administration, defence and other services [-10.3%].
In May this year the government already raised its gross market borrowing target for FY-21 to Rs 12 lakh crore from Rs 7.8 lakh crore budgeted in February. The borrowing limit was increased to combat sudden outbreak of Covid-19 pandemic and subsequent 68-day hard lockdown since March 25.
DK Srivastava, chief economist at EY India said, “The borrowing limit [Rs 12 lakh crore] is about 5.8% of GDP. Given the shortfall in tax and non-tax revenues due to unprecedented economic slowdown because of the pandemic, additional resources will be required to boost the economy.”
“Powerful stimulus is required else recovery will be delayed,” he said adding that even state governments are spending less. “There is a significant contraction in expenditure,” he added.
In the interview with HT, the finance minister also pointed at available fiscal space with states. “Even as we speak, not even one state has exceeded the 3% of GSDP [gross state domestic product] limit available to them in a normal year. Of course, we have another six months to go for the end of the year. Over and above, we have allowed them to borrow another half a percent more unconditionally; another 1% with conditions; and another half percent contingent on certain reforms,” she explained.
The industry called for some extra borrowing this fiscal year especially after a weak GDP numbers in Q1. “Here is a strong feeling that we would need a second round of stimulus. In such situation it is prudent this fiscal deficit to go up. So, it would be a very difficult situation for the government if they do not go for the much higher borrowing than Rs. 4.34 lakh crore to stimulate the economy,” said DK Aggarwal, president, PHD Chamber of Commerce and Industry.
Indeed, ahead of Bajaj’s comment, the expectation on the street was that the government would borrow at least Rs 1 lakh crore more.