With the finance ministry and the Reserve Bank of India (RBI) all set to meet on Tuesday to decide on India’s borrowing plans for the first half of the financial year 2020-21, speculations are rife that the government might go for a cut or even cancel its planned borrowings from the market for the month of April in light of the financial situation due to the nationwide lockdown.
At least a few officials at the finance ministry are of the opinion that market borrowing would be challenging in the current environment. Instead, the plan would be to sell the bonds to LIC or the RBI itself. In addition, the government could also use the RBI’s ways-and-means facility--an overdraft the central bank offers to the state--to address any immediate cash needs, reported Reuters citing sources in the finance ministry. Primary dealers are of the opinion that the borrowing in April needs to be cancelled as there is no appetite for the same.
Further, the private placement of bonds would ensure the government gets the money it needs for its expenditure while there is no impact on the market.
One of the finance ministry sources told Reuters that the government would likely take a month-by-month view on borrowing for the time being, unlike its normal practice of a six-month borrowing calendar.
If new issuances were pulled it would be the first time in decades that the government had taken such a step in the first month of the new fiscal year, as it depends heavily on such borrowing for paying out maturing bonds.
Tax collections too are far lower in the first month of India’s April-March fiscal year, and most expenditure is financed via borrowings.
The borrowing plans of the government would be announced by Tuesday after the video conferencing between the finance ministry and the RBI. This would be the first time the borrowing plans would be decided via a virtual meeting.
As per the Union Budget 2020, the government plans to borrow Rs 5.36 lakh crore for the next financial year starting Wednesday. It is higher than the Rs 4.99 lakh crore estimated for the current financial year, which is ending on Tuesday. "Net market borrowings for the year 2019-20 would be Rs 4.99 lakh crore and for the year 2020-21, it would be Rs 5.36 lakh crore," Finance Minister Sitharaman said during budget 2020.
