Government may advance market borrowing to fight coronavirus

As the need for more funds to fight coronavirus rises, the Centre is planning to access financial markets in a big way.

The Reserve Bank of India (RBI) and the Finance Ministry are likely to meet on Tuesday to discuss if a major part of the Rs 5.36 lakh crore budgeted to be borrowed from the market in the financial year 2020-21 can be accessed in the coming weeks and months.

So far, the government and the RBI together have committed over Rs 5 lakh crore in welfare funds and liquidity to financial system. But that may not be enough to give relief to various sectors that have been hit by the virus.

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The Centre borrows through the issue of government bonds and treasury bills. The financial markets are looking forward to the size of the government’s borrowing programme. There is a fear that the government’s loan from the market may exceed its budget target this year as it is in the midst of tackling an unforeseen health emergency.

The government’s decision to stick to its borrowing programme largely keeps the bond yields under check. If the Centre resorts to larger borrowing, its interest costs too go up, impacting the fiscal deficit.

The announcement of the borrowing programme is also important to calm the markets which have gone too volatile these days.

The meeting between the Finance Ministry and the RBI will take place through video conferencing after which the ministry will put out the number in public domain.