Govt raises limit on market borrowing

New Delhi, May 8: The central government on Friday increased its market borrowing estimate by staggering Rs 4.2 lakh crore to Rs 12 lakh crore for the current fiscal to deal with the expected shortfall in revenue due to the impact of Covid-19 on the economy.

The government resorts to market borrowing to make up for the mismatch between its revenue and expenditure.

Finance minister Nirmala Sitharaman in her Budget for 2020-21 had pegged gross borrowing in the new financial year at Rs 7.8 lakh crore, higher than Rs 7.1 lakh crore estimated for 2019-20.

With the increase in the borrowing estimate, the government would have to revise upwards its fiscal deficit target from 3.5 per cent pegged for the current fiscal.

"The estimated gross market borrowing in the financial year 2020-21 will be Rs 12 lakh crore in place of Rs 7.80 lakh crore as per BE 2020-21. The above revision in borrowings has been necessitated on account of the Covid-19 pandemic," the finance ministry said.

The government has also increased the weekly borrowing target to Rs 30,000 crore from Rs 21,000 crore fixed on March 31.

"The upward revision in borrowings for the remainder of FY21, although sharp, was inevitable given the estimated extent of revenue

The impact of the coronavirus outbreak will exacerbate the material slowdown in India’s economic growth, with the country expected to see zero per cent expansion in the current fiscal year, analysts at Moody’s said on Friday.

The ratings agency said it expected India to see no growth in financial year 2021 and bounce back to a

loss following the lockdowns related to the Covid-19 pandemic," said Aditi Nayar, principal economist at Icra.

Traders said bond yields are likely to open sharply higher on Monday if there

6.6 per cent GDP growth in FY22, while the fiscal deficit is seen rising to 5.5 per cent of GDP in FY21 versus the budgeted estimate of 3.5 per cent.

In November, Moody’s cut the outlook on India’s sovereign rating of Baa2 to “negative” from “stable” due to a slowdown in growth and had said it will monitor the country’s debt levels closely.

Baa2 is the second-lowest investment grade score. is no announcement from the central bank on how it plans to support this borrowing programme.

"The announcement though expected has come a bit early. Market reaction depends on what the RBI does," said economist Securities Dealership.

"Else we could see a 25 bps selloff on Monday and then further sell off. But RBI has two days to manage this."

Several traders too agreed the market would open a minimum 10-15 basis points higher on Monday. Earlier in the day, the existing benchmark 10year bond yield closed 6 bps lower at 5.97 per cent, its lowest level since January 27, 2009.

The government sold a new 10-year paper at 5.79 per cent at an auction amid aggressive buying by state-run banks but the bullishness was likely to wane following the higher borrowing announcement.

Market participants are also eagerly awaiting the announcement of a second stimulus package from the government to gauge the extent of fiscal slippage that may happen.

"Higher borrowings are likely to push up yields, unless OMOs (open market operations) 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," Nayar said.

"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."

A. Prasanna, with ICICI Primary