“The government now plans to borrow the balance Rs 5.03 lakh crore in the second half year (H2) of FY 2021-22. The H2 FY2021-22 projection also factors requirements for release of balance amount to states on account of back-to-back loan facility in-lieu of goods and services tax compensation during the year,” a finance ministry statement said on Monday.
Out of gross market borrowing, Rs 7.24 lakh crore or 60% was planned to be borrowed in the first half. The effective borrowing in H1 of FY 2021-22 was Rs 7.02 lakh crore.
“The GoI’s H2 FY2022 borrowing calendar has provided a positive surprise, as while the amount is in line with the budget, it has absorbed the back-to-back GST compensation loan to be provided to the states,” said Aditi Nayar, chief economist ICRA.
“A credible number given the fiscal trajectory so far. In fact, if some of the more uncertain disinvestments materialise, the figure could be lower in line with market expectations and could keep yields in check,” said Abheek Barua, chief economist, HDFC Bank.
The Rs 5.03 lakh crore borrowing is likely to be conducted in 21 weekly tranches of Rs 24,000-23,000 crore, a finance ministry statement said Monday.
The centre’s entire back-to-back borrowing for states for GST compensation for FY22 is pegged at Rs 1.59 lakh crore, of which Rs 75,000 crore was released in July, out of its own cashbalances. The second half borrowing will include Rs 84,000 crore balance, indicating that the entire borrowing had been managed within budgted target without putting any additional pressure on markets to borrow on behalf of states for GST.
Nayar said the borrowing implied the government’s fiscal deficit will be around Rs 1.6 lakh crore lower than budgeted, despite the modest rise in expenditure, a clear confirmation that revenue upturn was underway. It also indicates the government expects the Rs 1.75 lakh crore disinvestment proceeds to come through. Based on the borrowing calendar, G-sec yields are expected to open gap-down by at least 10 bps, Nayar added.
Given the better than expected financial position, Barua called for more support to the economy. “There is room for offering another round of fiscal stimulus and there is no need to show lower fiscal deficit at this juncture as many sections of the economy still need support,” he added. Barua said the government’s fiscal deficit could be in the range 6-6.4% of the GDP as against 6.8% of GDP budgeted for FY22.
The finance ministry said borrowing in the first was completed smoothly with a weighted average yield at 6.19 % and weighted average maturity at 16.69 years.
The second half borrowing, it said, will be spread under 2, 5, 10, 14, 30 and 40 year-securities and floating rate bonds of tenor of 7-8 & 13 years.
The government will continue to carry out switching of securities to smoothen redemptions in coming years, the statement said. To take care of temporary mismatches in government account, the Reserve Bank has fixed the Ways and Mean Advance limit for H2 at Rs 50,000 crore, it said.