Govt may Go for Higher External Financing

Gross market borrowing likely to be less than FY21’s ₹12-lakh crore

The Budget is expected to turn to external financing of the fiscal deficit during FY22. The gross marketing borrowing, however, is likely to be less than the enhanced amount for the current fiscal.

Loans from multilateral agencies such as the World Bank, IMF, ADB and the bilateral JICA will constitute the external financing. These funds are mainly used for long-term financing and carry much lower interest rates. A sovereign bond issue overseas is not a priority now.

External financing is one of the tools to bridge the fiscal deficit gap and is expected to be in the range of ₹60,000-65,000 crore, while the gross borrowing is likely to be around ₹10.5-11 lakh crore. The Budget Estimate for external financing for FY21 was ₹4,622 crore while the enhanced gross borrowing number is ₹12-lakh crore.

All-time high

The amount raised through external financing during the first eight months (April-November) in FY21 touched ₹38,495.5 crore, which is 833 per cent of the Budget Estimate. This is an all-time high. During the corresponding period of last fiscal (FY20), it was actually an outflow, of 240 per cent of Budget Estimate. Government officials said considering the requirement of the infrastructure sector and due to limited long-term funding facility, higher external financing would be a better option. “Domestic borrowings is through G-Secs which have maturity period of 1-40 years. But as the needs for various schemes and programmes especially health, defence and education are very high, domestic borrowing will first be preferred there,” a senior government official said.

Devendra Kumar Pant, Chief Economist with India Ratings & Research (Ind-Ra), feels external financing of deficit could touch ₹55,000 crore. “Similar to FY21, Ind-Ra expects external financing of fiscal deficit to the tune of ₹67,050 crore, which is 5 per cent of the estimated fiscal deficit. He said the World Bank and its group committed $5.13 billion to India in 2020 from an average of $3 billion during 2017-2019. In 2021, the World Bank group has already committed for $1.04 billion.

Gross borrowing

To bridge the deficit (the gap between the expenditure and the income of the government), gross borrowing in FY22 is expected to be more than the Budget Estimate of ₹7-8 lakh crore but less than the revised borrowing of ₹12-lakh crore during the current fiscal.

“No doubt more and more resources are required, but some good numbers from tax revenue and non-tax revenue are expected. This will have an impact on the borrowing requirements,” another official said.