Government Raises Gross Borrowing Target For First Time In Six Years

Faced with a shortfall in indirect tax revenues following the implementation of the Goods and Services Tax, the government will increase its gross borrowings from the market above the budgeted amount. This is the first time since fiscal 2012 that the central government has announced a substantial increase in the planned gross borrowings.

In a press release issued on Wednesday, the government said that it would borrow an additional gross amount of Rs 50,000 crore from the markets this fiscal, taking total borrowings up to Rs 6.3 lakh crore. At the time of the Union Budget, the government had pegged gross borrowings at Rs 5.8 lakh crore.

However, the government intends to keep net borrowings unchanged, it said.

“While the upward revision in the Government of India’s dated issuance calendar for January-February 2018 is being offset by the reduction in the planned T-bills issuance, concerns regarding a mild fiscal slippage persist on account of the sequential dip in GST collections for November 2017,” said Aditi Nayar, principal economist at rating agency ICRA. Nayar added that the change in the long-term market borrowings and short-term T-bill issuance ‘neither confirms nor rules out’ fiscal slippage in the current financial year.

Bond yields have been rising on fears that the government will not be able to meet its fiscal deficit target of 3.2 percent for the current year. It is still not clear whether the target will be met since the government has said that it will keep net borrowings unchanged.

A senior economist, who spoke on condition of anonymity, noted that there is additional gross borrowings of Rs 23,000 crore via t-bills as well, which takes the total increase in borrowing to Rs 73,000 crore. This would suggest a slippage in the fiscal deficit, said this economist.

The increased supply of longer tenor bonds could keep the 10-year bond yield elevated. Yields rose to 7.30 percent on Wednesday in trade but closed below those levels. The increased supply of longer tenor bonds will keep yields high, said a bond market trader on condition of anonymity. In addition to that, nervousness around the fiscal deficit target for this year and next year also remains, he added.