Centre keeps borrowing programme unaltered at Rs 4.34 trillion in H2

The temporary ways and means advances (WMA) for the government are also fixed at Rs 1.25 trillion, lower than Rs 2 trillion in H1FY21, but much higher than H2FY20's Rs 35,000 crore
In a relief to the bond market, the government has kept its full-year borrowing limit unchanged at Rs 12 trillion. It believes that revenue pick-up will compensate for its expenditure, even if it has to announce a stimulus package.

The second half borrowing programme will be Rs 4.34 trillion. This is 36.16 per cent of the total borrowing planned by the Centre. In the first half ended September, the government had borrowed Rs 7.66 trillion at an average yield of 5.82 per cent. This included Rs 68,000 crore exercised during the past 18 auctions.

The temporary ways and means advances for the government is also fixed at Rs 1.25 trillion, lower than Rs 2 trillion in the first half but much higher than last year’s second half of Rs 35,000 crore.  

“Based on our revenue estimates, they are looking up. Since we borrowed heavily in the first half of the year, we anticipate that the Rs 12 trillion would serve us well till March 31,” said Tarun Bajaj, secretary, Department of Economic Affairs (DEA), during a briefing on the second half’s borrowing calendar.

Besides, the government gave states and the private sector more room to borrow in the second half. The calendar issued by the central bank showed states and Union Territories would be borrowing more than Rs 2 trillion in the October-December quarter. Last year in the third quarter, states had borrowed Rs 1.7 trillion.  

“The borrowing in the first half is more than what we did in the same period last year. For the second half, we planned our resources and expenditure accordingly. Even if there are ugly surprises, we are prepared,” said Bajaj.  

Divulging details of the plan, the DEA secretary said that in the second half, borrowing will be similar to the first half’s.  Borrowing will happen in 16 weekly tranches, starting October. The first tranche will happen a week later at the rate of Rs 28,000 crore per week. The tenure will be the same as the earlier half year — 2, 5,10, 30, 40, and 60 years. The government will also float rate bonds with a tenure of 13 years.  

Explaining why the limit remained unchanged despite stress on the revenue side, Bajaj said the situation has improved since the economy opened up in June. Besides, the prioritisation of expenditure has been planned to balance out the rise in expenditure in one area against dodging in others.

“Keeping this in mind, and anticipating what could happen in the coming half of the year, we have decided to continue with the same figure as our borrowing for the total year,” added Bajaj.

However, experts are not so sure that the government would be able to keep its commitment. Almost everyone in the bond market expects a higher borrowing after January, when the last auction will be held.

“The unchanged borrowing calendar may turn out to be a case of deferring the inevitable, given the build-up in fiscal stress. It is possible that the government may prefer to exercise the greenshoe options as has been done in several recent auctions,” said Aditi Nayar, principal economist of ICRA.

According to Harihar Krishnamurthy, head of treasury at First Rand Bank, since the borrowing will be completed by January, there is “always the fear that February and March could see some overflow of borrowings if needed”.

In this context, if the RBI announces measures such as open-market operations purchase of bonds from the secondary markets, and keep rate-cut possibilities alive, the bond market will heave a sigh of relief. “Ideally if the new monetary policy committee gets growth as the primary mandate and monetisation is kept as an alternative, a sustainable rally in bonds will happen,” said Krishnamurthy.

“Stable borrowings will have only a salutatory effect in the near term. The market will continue to circumspect on higher borrowing in the fourth quarter (Q4). But the brighter aspect is for the monetary policy to remain inflation vigilant and fiscal turning benign. These equations could reverse in Q4,” said Soumyajit Niyogi, associate director at India Ratings and Research.

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