The government will raise 75 per cent more funds in 2021-2

Mumbai, Ta. 27 January 2021, Wednesday

The government's borrowing figure for the next financial year is projected to be 5 per cent higher than the average of the last five years. If the government's borrowing figure in FY 2021-2 is projected to be Rs 10.50 trillion as compared to the estimated Rs 19.10 trillion borrowing in the current financial year, 2020-21.

Record borrowing by the government is also expected to push up interest rates in the bond market. On the one hand, the government's borrowing program and on the other hand, the planned withdrawal of excess liquidity from the Reserve Bank system could lead to higher interest rates in the bond market, said an analyst.

The economic impact of the Corona will have an impact on the government's tax revenue and the government will need extensive funding to bail out the country's economy, which has come under pressure. The government plans to raise these funds from the market.

Excluding FY2030, the government's borrowings were below Rs 3 trillion in the previous five years. In the financial year 2020, the government's borrowing figure was more than Rs 7 trillion.

A sharp rise in the supply of government bonds could lead to a money crunch in the bond market, which would not be a surprise if interest rates remain high, the analyst added.

Given the Reserve Bank's plan to withdraw excess liquidity, the government may be forced to take drastic measures to raise money in the next budget. Given that India's economy is still under pressure, the Reserve Bank of India (RBI) has said it will not rush to tighten monetary policy.