Centre borrows less than planned amid second wave of Covid-19 pandemic

The central government has borrowed less than what it planned for the first two months of the ongoing fiscal year, as the second wave of the pandemic put on hold most of the government’s planned expenditure.

Compared with last year, though, the borrowing has been higher. In 2020-21, the government had increased the borrowing programme in May, and so the pressure in the market came from mid-May. The borrowing in 2021-22 up to May-end was Rs 1.84 trillion, whereas, the plan was to borrow Rs 2.32 trillion through weekly auctions.

This is Rs 48,000 crore less than what was planned. However, the government made it good through other means — Reserve Bank of India (RBI) dividend.

“While we all know that the government’s finances are stretched and the RBI is doing its best to contain yield levels, to be noted, in the first two months of the financial year, borrowing has been Rs 48,000 crore lower than scheduled, while RBI’s dividend has been higher by Rs 45,000 crore over budget estimates,” said Joydeep Sen, consultant, fixed income, at Phillip Capital. 

However, in absolute terms, the government’s borrowing is more than last year. For example, so far this fiscal year, including an auction on Friday, the government’s gross borrowing has been Rs 2.7 trillion, which is 60 per cent more than the corresponding period last year, CARE Ratings noted. 

While the government has kept its market borrowing at the same high level as last year due to Covid-19, the borrowing pattern has changed.

The government, through the RBI, is more forceful in not heeding to the market demands. The RBI frequently forces primary dealers to buy unsold bonds, or even cancel auctions outright. On Friday, it once again devolved to a 10-year bond auction.

Out of the Rs 14,000 crore of 10-year bonds available, the RBI forced primary dealers to buy Rs 9,975.763 crore. The cut-off was made at 5.99 per cent, even as the RBI insists it doesn’t target the 6 per cent-level for the benchmark bond.