The government said on Thursday it would maintain its gross borrowing target of Rs 2.08 lakh crore, or 36 percent of the year-long target for the second half of this fiscal year, adding that much of the lending will be “front -loaded “between October and January. Finance Secretary Subhash Chandra Garg, however, did not “completely rule out” the possibility of additional borrowing in the last quarter of this fiscal year. Some analysts said the monetary policy committee could take note when it meets amid a loud clamor for a rate cut. “If there is any need, which we do not foresee at this time, we will consider the possibility of an extra loan in the last quarter,” Garg said after a meeting of the Ministry of Finance and RBI officials. The secretary said any questions for additional loans will come up only after additional demands are made towards the end of next quarter. Until then, there is no change in the borrowing target and the government, as of now, is maintaining the target of the fiscal deficit of 2017-18 of 3.2% of GDP, he added. The secretary’s statements come amid expectations that the government could go for a stimulus package to shore up economic growth that fell to a three-year low of 5.7% on Q1FY18. Analysts said the government is holding the option open for additional lending aware of the uncertainties surrounding tax collections in the post GST period and the need to stimulate the economy with an incentive package.
The government will have borrowed Rs 3.72 lakh crore by the end of the first half of 2017-18 as a target, which is 64% of the budgeted level of Rs 5.8 lakh crore for the full year. Gross borrowing in H1 has been marginally higher than the usual 60-62% for the April-September period in recent years. Net borrowing in the second half is seen at Rs 1.92 lakh crore.
The debt target was set slightly higher than usual for the first half of 2017-18, bearing in mind that 90% of annual repayments of Rs 1.57 lakh crore are scheduled for fiscal April-September. In addition, since the budget was advanced on February 1 of this year from the traditional date of February 28, funds must be available from the beginning of the next fiscal year. The government had previously said that the focus will be on extending the maturity profile of government loans in 2017-18. The average maturity of the bonds has been 14.7 years at H1FY18 for about 10.5 years. The limits of the ways and means advances for H1 of 2017-18 has been set at Rs 60,000 crore, he said.
It is important to note that although the Center has adhered to fiscal discipline in recent years, it is expected that the fiscal deficit of the states will increase as a result of the announcements of waivers of agricultural loans by some of them, threatening to reverse the gains of the Center’s restriction. Between FY13 and FY17, while the Center has reduced its fiscal deficit from 4.9% of GDP to 3.5%, the deficit of the states has increased from 2% of GDP to an estimated 2.7% in the last fiscal year.
The Economic Survey (Volume II) has estimated that loan declines from all states could reduce aggregate demand by as much as 0.7% of GDP, which would generate a significant deflationary shock. This is mainly due to the fact that states that finance the loan exemption would have to trim spending and possibly raise taxes to improve incomes and maintain their fiscal deficit limit of 3%, although private demand tends to increase.