Budget 2020: Markets brace for Rs 8-trillion gross borrowing in FY21

 The upcoming fiscal year, the bond market expects the government to announce heavy borrowing.but the numbers could be masked through off-balance sheet items, such as enabling public sector companies to raise government-serviced bonds.

 B Prasanna, head of global markets and proprietary trading group;ICICI Bank said that,"The broad consensus of this year budget affects the market participants for 2020-21 (FY21) fiscal deficit is at 3.5 per cent, which would converted  into gross borrowings of Rs 7.7-7.9 trillion. A reliable Budget which bring up anything below these numbers would be a positive surprise for the market". According to the Fiscal Responsibility and Budget Management Act,Bond traders say the market wouldn’t be bothered if the government is not able to keep the fiscal glide  and overshoots its targets by 0.5 percentage points.

The current situation is same as what it was in 2014-15, At that time,when the market was okay with the government they were breaching the target, and the government didn’t do that at that timr.creative accounting is the main cause for upsets of market and foreign investors.

Creative mode of accounting is allowing public sector undertakings to raise government serviced bonds. While the government pays for the principal and interest, the numbers don’t reflect in the total borrowing. Such a possibility has already taken assurance after the Nabard last Friday said it would be raising Rs 7,000 crore worth of government serviced bonds on Friday.

The repayment around Rs 2.35 trillion, gross borrowings of the Centre are expected to come at Rs 7.85 trillion. In addition, states are expected to borrow Rs 7 trillion, thus, taking the total borrowing for FY21 to be closer to Rs 15 trillion.the government is considering increasing the limit of foreign portfolio investments to 10 per cent of the outstanding, from the current 6 per cent. This may get announced in the Budget itself, say sources. But on an immediate basis, the market is gearing up for extra borrowing for the current fiscal year.