The government said on Thursday it will stick to its gross borrowing target of Rs 2.08 lakh crore, or 36% of the full-year target, for the second half of this fiscal, adding much of the borrowing will be “front-loaded” between October and January. Economic affairs secretary Subhash Chandra Garg, however, didn’t “completely rule out” the possibility of additional borrowing in the last quarter of this fiscal — a fact, some analysts said the monetary policy committee could take note of when it meets next amid strong clamour for a rate cut. “If there is any need, which we don’t foresee at this moment, we will consider the possibility of extra borrowing in the last quarter,” Garg said after a meeting of the finance ministry and RBI officials. The secretary said any question for additional borrowing will arise only after supplementary demands are placed towards the end of the next quarter. Until then, there is no change in the borrowing target and the government, as of now, is maintaining the 2017-18 fiscal deficit target of 3.2% of GDP as well, he added. The secretary’s statements come amid expectations that the government could go for a stimulus package to prop up the economic growth that dropped to a three-year low of 5.7% in Q1FY18. Analysts said the government is keeping the option open for additional borrowing mindful of the uncertainties surrounding tax collections in the post-GST period and the need to stimulate the economy with a package of incentives.
The government will have borrowed Rs 3.72 lakh crore by the end of the first half of 2017-18, as targetted, which is 64% of the budgeted level of Rs 5.8 lakh crore for the full year. The 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 slightly higher than the usual borrowing target for H1 of 2017-18 was fixed, taking into account the fact that 90% of the full-year redemptions of Rs 1.57 lakh crore are scheduled for April-September next fiscal. Also, since the Budget was advanced to February 1 this year from the traditional date of February 28, the funds have to be made available from the beginning of the next fiscal itself. The government had earlier said focus will be on to elongate maturity profile in government borrowing in 2017-18. The average maturity of bonds has been 14.7 years in H1FY18 from around 10.5 years now. The ways and means advances limit for H1 of 2017-18 has been fixed at Rs 60,000 crore, he said.
Importantly, while the Centre has been adhering to fiscal discipline in recent years, the fiscal deficit of states is expected to rise following the announcements of farm loan waivers by some of them, threatening to reverse gains from the Centre’s restraint. Between FY13 and FY17, while the Centre has cut its fiscal deficit from 4.9% of GDP to 3.5%, states’ deficit has gone up from 2% of their GDP to an estimated 2.7% last fiscal.
The Economic Survey (Volume II) has estimated that loan waivers by all states could reduce aggregate demand by as much as 0.7% of GDP, imparting a significant deflationary shock. This is mainly due to the fact that states funding the loan waiver would have to prune spending and possibly raise taxes to improve revenue and stick to their fiscal deficit limit of 3%, although private demand tends to get a boost.