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Government borrowing to increase by 54% than estimated

The Government of India announced that it is expected to borrow 54% more than it estimated in its union budget for FY 2020. The budget estimated that it would borrow  Rs. 7.8 lakh crore for this financial year. But the expected revenue fall due to the lockdown caused by the pandemic. The overall borrowing of the government this fiscal year would be 12 lakh crore with the additional borrowing of Rs. 4.2 lakh crore. This action was taken amidst the serious revenue shortfall the government expected due to stalled economic activity. Revenue from both direct and indirect taxes are expected to fall heavily.

Government borrowings and fiscal deficit

The fiscal deficit is expected to be at 5.5% according to the American credit rating agency Moody’s. The government is expected to announce the second set of the economic package for the purpose of helping the Indian economy restore its healthy growth rate. The RBI announced that the government has planned to borrow Rs. 30,000 crore every week from the market between May 11 and September 30. This will be done through bond auctioning between a tenor of 2 years and 40 years. The government has already borrowed for about 1.06 lakh crore from the market last month.

What are the borrowings going to fund?

“The estimated gross market borrowing in the financial year 2020-21 will be Rs. 12 lakh crore instead of Rs.7.80 lakh crore as per budget estimate. The revision on estimate has been necessitated on account of the COVID-19 pandemic” the RBI said in its statement. The RBI is supposed to carry out these auctions.

The announcement came on the day it introduced another 10-year bond which provides a yield of 5.79% per annum which will now be used as the new risk-free rate. The borrowings are expected to meet the revenue shortfall, extra spending, and meet the stimulus expectation for fighting the ongoing pandemic crisis.

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