Cost of financing in the economy could go up as the government’s gross borrowing programme at ₹12-lakh crore in FY2022 is higher than expected, according to experts.
The fiscal deficit (BE) in 2021-2022 is estimated to be 6.8 per cent of GDP. Per the budget, the government would need another ₹80,000 crore, for which it would be approaching the markets in the February-March 2021.
Rajkiran Rai G, Chairman, Indian Banks’ Association, observed that since the government has to incur additional expenditure due to the Covid-19 pandemic, it is not surprising to see the fiscal deficit target for the current year at 9.5 per cent as against the budget estimate of 3.5 per cent for FY21.
However, the Budget has reiterated the government’s resolve to reduce the deficit as early as possible, he added.
“Higher fiscal deficit implies more government borrowing from the market, leaving less room to borrow for the private sector. How the government manages the borrowing programme would determine the future trajectory of the markets,” Rai said.
Rise in borrowings costs?
Abheek Barua, Chief Economist, HDFC Bank, in his report ‘Budget 2021-22: The Queen’s Gambit’ noted that the unexpectedly large fiscal deficit numbers both for the current and the next year entail huge borrowings, much beyond market expectations.
“Government bond yields have hardened quite a bit in the wake of the recovery. The Finance Ministry and the RBI will have to work closely together to check the rise in yields and ensure that the budget doesn’t ultimately result in a rise in borrowing costs across the board,” he said.
Radhika Rao, Economist, DBS, in a note, said the borrowing program is expected to remain elevated with gross borrowings at Rs 12 lakh crore in FY22 vis-a-vis street expectations of Rs 10-11 lakh crore. She opined that the cost of financing is likely to rise gradually during the course of the year.
The FY21 gross borrowings stood at ₹12.3-lakh crore by December 2020, more than double the budgeted estimate of ₹5.3-lakh crore, the note said. Issuance is expected to rise by an additional ₹80,000 crore the final quarter of the fiscal year.