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New Delhi: The Center on Friday increased its gross loan program for fiscal year 21 to ₹12 billion for fiscal year 21 of the budget ₹7.8 trillion, indicating a major slide in the fiscal deficit amid mounting pressure on the revenue and spending fronts due to the Covid-19 pandemic.
“The estimated gross indebtedness of the market in the financial year 2020-21 will be ₹12 lakh crore instead of ₹7.80 million rupees according to BE 2020-21. The previous review of the loans has been necessary due to the COVID-19 pandemic, “the Reserve Bank of India said in a statement.
On March 31, then-Secretary of Economic Affairs Atanu Chakraborty released the loan schedule for fiscal year 21, arguing that the government will load its loan program by issuing government securities. ₹4.88 trillion or 62.56% of its gross debt target for fiscal year 21 in the first half (April-September) of the year. On Friday, the RBI said that for the remainder of the first half of fiscal year 21, the government will borrow ₹6 billion.
India’s ongoing national blockade to stem the spread of the coronavirus pandemic has led to a sudden halt to business with manufacturing and service PMIs that fell to record levels in April. This is expected to hamper government revenue collection while increasing demand for resources to combat the coronavirus outbreak. Currently, the government is contemplating the size and nature of a stimulus package for the economy, including the source of financing to halt massive job losses and protect vulnerable sectors of society.
Aditi Nayar, chief economist at Care Ratings, said the upward revision in the lending program, while sharp, was inevitable given the estimated extent of revenue loss after the Covid-19 pandemic-related blockade. “Higher loans are likely to increase yields, unless open market operations or other instruments are deployed by the RBI to absorb a portion of the higher issuance and exclude loans from state governments and companies. Without However, less pressure on spending compression to offset the expected revenue deficit would allow economic activity to show some appearance of recovery in the latter part of this fiscal year, “he added.
Madan Sabnavis, chief economist at Care Rating, said the increase in the gross debt program could raise the fiscal deficit to around 5.5% of GDP in fiscal year 21 from 3.5% of budgeted GDP. “There are clear signs that the government’s finances have been affected by the closure, as revenues have decreased and spending pressure will be there throughout the year, even after the closure is withdrawn. One conclusion is that this it also means that there is currently no intention for RBI to make loans directly to the government, “he added.
Moody’s Investors Service warned on Friday that the country’s sovereign rating could be downgraded if its fiscal metrics weaken materially, following a similar warning from Fitch Ratings.
Sabnavis said that aside from tax collection, the divestment target of ₹2.1 trillion seems unattainable, as Air India and BPCL’s main goals are unlikely to get the right valuation given the state of the industries. “Nominal GDP of ₹225 trillion would not be reached with the best possible growth in expected nominal GDP by 5-6% compared to the budgeted 10%, “he added.
Many forecasters have projected that the economy will contract in fiscal year 21 or grow between 1-2%. Moody’s said Friday that the economy will grow to 0% in fiscal year 21, revising down its March forecast of 2.6% growth.
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