COVID-19 forces government to rejig borrowing plan, hikes it to Rs 12 lakh crore

To tackle the economic fallout of the COVID-19 pandemic, the government has sharply increased its gross market borrowing programme. The Central government has raised the estimated gross market borrowing for FY 2020-21 to Rs 12 lakh crore from Rs 7.80 lakh crore as per Budget Estimates (BE) 2020-21, the government said in a circular.

The government said the revision in borrowings has been necessitated on account of the COVID pandemic.

The gilt issuance calendar for the remainder of April-September has also been modified.

"There are clear signs of government finances being affected by the shutdown as revenue has ebbed and expenditure pressure will be there through the year even after the lockdown is withdrawn," Care Ratings said in a report.

This could also mean that the Reserve Bank of India (RBI) presently doesn't intend to lend directly to the government. "Also the surplus money going into reverse repo could not be diverted to GSecs which make a safe avenue for parking surplus funds," the report said.

As per the revised calendar, the government will borrow Rs 6 lakh crore from the market via gilts through the remaining part of the first half of the year.

The government borrows money from the market to meet any shortfall in funds to meet its expenditure when it is unable to cover it with income earned through tax, non-tax revenue.

The government borrows money from the market through the issue of dated securities and treasury bills, the purchase and sale of which is conducted by the Reserve Bank of India.

The money that government borrows during a particular fiscal year is called the net borrowing, while gross borrowing includes net borrowing for the year and the repayment of past loans.

When the expenditure is higher than the income, the difference -- referred to as the fiscal deficit -- widens.

Follow our full coverage of the coronavirus outbreak here