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Government to borrow 54% more than expected, budget deficit could reach 5.5%

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MUMBAI: Counterbalanced by higher spending due to the devastating impact of Coronavirus pandemic on the economy, the government announced Friday that it would borrow around Rs 12 lakh crore from the market during the 2020-2021 fiscal year, a massive increase of Rs 4.2 lakh crore, or 54% more than the budget estimate of Rs 7.8 lakh crore.
The decision to increase borrowing was also motivated by a serious loss of government revenue due to the cessation of economic activity across the country due to strict foreclosure, economists said.
Economists say this will push the budget deficit from 3.5% for 2020-2021 to 5.5%. GST, direct and indirect tax revenues are under heavy pressure, while sales of assets in Crown corporations that were to generate much-needed income stagnated in the midst of the Covid-19 pandemic. . There have been more and more calls to unveil a fiscal stimulus to help several sectors of the economy overcome the serious consequences of Covid-19. The government and the RBI have taken certain steps to help the poor and Financial markets as well as the start of loans, but the Indian industry called for a strong stimulus to help sectors hard hit by the pandemic to restart their activity and restore growth.
Between May 11 and September 30, over 20 weeks, the government will borrow 30,000 crore rupees each week by auctioning its bonds between two and 40 years, data showed on the RBI website. . So far, since April 9 and May 8, the government has already borrowed Rs 1.06 lakh crore from the market.
“The gross borrowing estimated on the market during the financial year 2020-21 will be Rs 12 lakh crore instead of Rs 7.80 lakh crore according to the forecast budget 2020-21. The above loan review was made necessary because of the Covid-19 pandemic, “said the RBI, which conducts the weekly auction.
Economists have said that increased market borrowing will help the government meet the stimulus and additional spending needs following the pandemic.
“The announcement of additional borrowing reflects the possible loss of government revenue as economic activity continues to be in a lockdown mode. Such announcements of additional borrowing also occurred after the global financial crisis and currently reflect the deterioration of public finances in the Center and in the inactive states. We believe this decision will allow the central government to partially mitigate the loss of revenue in the interregnum, “said Soumya Kanti Ghosh, group chief economic advisor at National Bank of India.
The government’s chief economic adviser Krishnamurthy Subramanian In an interview with TOI on Friday, said that borrowing from the market was an option to raise funds for additional spending and that the size of the stimulus should match the country’s tax-to-GDP ratio.
An SBI report of April 3 indicated that with increased spending related to Covid-19, while government revenues were severely affected due to the closure of most economic activities, central government borrowing and states should up. “We think states need more support from the center because their finances are under considerable stress since this is the last mile of Covid-19 deliveries and also because of the possibility of a significant slippage in central government finances is now a reality, “said the report. said.
With the central government now expressing its intention to borrow around 4.2 crores Rs lakh more than expected, economists now believe that even the states will soon go out to borrow more to meet additional expenses. These additional borrowing will certainly increase the budget deficit target from the current level of 3.5%, they said.
The announcement of an increase in government borrowing came on the day it introduced a new 10-year bond which will now be the benchmark. The new 10-year gilts were priced at 5.79% a year and closed the trading day at 5.71%, a low level of 11 years.

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