"When there is some sense on that, we can put a figure on extra borrowing, which cannot be completely ruled out," the official said. The decision on extra borrowing will depend on the government's revenue position, which is difficult to assess currently, a second official said.
"The decision (on extra borrowing) will be made when deciding on the second half borrowing calendar, or just like every year, towards the end of December," the official said. Market participants expect the fiscal deficit to widen sharply from the projected 3.5% of GDP in 2020-21 (Apr-Mar) on account of the likely slowdown in growth and stimulus packages. The government has announced market borrowing of 4.88 trln rupees in Apr-Sep, accounting 62.6% of the total borrowing of 7.80 trln rupees through dated securities in 2020-21. Government finances have been under extreme stress because of muted tax revenues and the likely extra spending to mitigate the economic fallout of the COVID-19 pandemic and the subsequent nationwide lockdown. The Reserve Bank of India has already raised the short-term advances to the government to a record 2.0 trln rupees for the first half of the year "to tide over the situation arising from the outbreak of the COVID-19 pandemic".
The government had last week increased the planned borrowings through treasury bills in the remaining period of Apr-Jun by 2.0 trln rupees. PRIVATE PLACEMENT The severe stress to government finances has led to many economists and former policymakers advocating private placement of government securities with the RBI. The Fiscal Responsibility and Budget Management Act bars the government to borrow directly from the RBI, except under exceptional circumstances. At the moment, the government has had only preliminary discussions with the RBI on possibility of private placement of government bonds, the second official said.
"A decision on private placement of gilts is yet to be taken. My sense is that it (private placement) will hinge on how much more the government may need to borrow from markets and when," the official said. The government has not privately placed debt with the central bank since Apr 1, 2006, when the ban on RBI participating in primary government securities market came into being. "The government has discussed with the RBI, the possibility of reviewing FRBM targets or the whole framework, in view of COVID," a banking industry source said.
"The call was that it would be better to do so in the second half when there is more clarity on government finances," the source said. "...for now, the view is that immediate liquidity needs can be met by RBI through various means. A full picture on COVID is needed to decide how much the government expenditure would rise and income would be hit," the source said. Last week, Cogencis exclusively reported that the RBI may have taken a big step closer to directly monetising the Centre's borrowing by resorting to indirect subscriptions of government bonds and treasury bills at auctions. Most private think tanks have projected the growth in the Indian economy to slowdown to under 2.0% in 2020-21 due to the coronavirus outbreak and the subsequent lockdown, which has brought economic activity in the country to a near halt.
