The government has raised gross borrowings program in the current fiscal by over 50 per cent as it seeks more funds to stimulate the economy hit by Covid-19 pandemic. As per the latest calculations, the government will now borrow Rs 12 lakh crore instead of previously budgeted Rs 7.8 lakh crore for the FY 2020-21.

“The revision in borrowings has been necessitated on account of the COVID-19 pandemic,” a Finance Ministry statement said.

The increase in borrowing has been done in consultation with the Reserve Bank of India (RBI). However, the statement issued did not explain details on financing deficit or whether the RBI will buy government securities (directly or indirectly).

With the change in borrowing plan for FY21, the government has also modified the indicative calendar for the remaining part of the first half of fiscal 2020-21 in consultation with the Reserve Bank of India.

So, the government’s new H1 borrowings is Rs 6 lakh crore instead of previously budgeted Rs 4.88 lakh crore. RBI will conduct auctions of dated securities worth Rs 6 lakh crore in the remainder of H1 between May 11 and September 30.

The calendar would include issuance of dated securities with maturity ranging from 4-40 years. It will also have auction of floating rate bonds. Each block of auctions over a 5-day period will be of Rs 30,000 crore. These maturity profile in the first half follow as:

Rs 40,000 cr via floating rate bonds
Rs 50,000 cr via 40-year bonds
Rs 70,000 cr via 30-year bonds
Rs 1.1 lakh cr via 14-year bonds
Rs 1.8 lakh cr via 10-year bonds
Rs 1.2 lakh cr via 5-year bonds
Rs 30,000 cr via 2-year bonds

All auctions covered by the H1 calendar will have the facility of non-competitive bidding scheme under which 5 per cent of the notified amount will be reserved for the specified retail investors.

“Like in the past, the RBI in consultation with the Government, will continue to have the flexibility to bring about modifications in the calendar in terms of notified amount, maturities, etc. and to issue different types of instruments, including Floating Rate Bonds (FRBs), including CPI linked inflation linked bonds, depending upon the requirement of the Union government, evolving market conditions and other relevant factors,” the central bank said in a statement.

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 Rs 2,000 crore each against any one or more of the security, which will be indicated in the auction notification, the statement added.

Commenting on the development, ICRA Principal Economist Aditi Nayar said the upward revision in the borrowings for 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 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 said.

Last month, the Finance Ministry had decided to increase borrowing through short term government papers of up to one year by Rs 2 lakh crore.

As per the earlier plan, the government was to borrow Rs 3 lakh crore from treasury bills over 12 weeks with weekly auction of Rs 25,000 crore each. Thus, the total borrowing through treasury will go up to Rs 5 lakh crore from Rs 3 lakh crore decided earlier.