Borrowing plan won’t crowd out private sector: Tarun Bajaj

New Delhi: The government will ensure its record FY22 borrowing programme doesn’t crowd out the private sector if credit demand picks up, economic affairs secretary Tarun Bajaj told ET in an interview, adding that the Centre will soon engage with international credit rating agencies on the budget that was announced on Monday. He expects the services sector to bounce back sharply as the Covid vaccine programme is rolled out across the country.

The government will also nudge states to step up capital spending, to add to the Centre’s infrastructure push.

“Everything is in our favour now,” and “the huge push to infrastructure and capital spending will add to the buoyancy,” he said.


Bajaj said the government will soon set up a committee to prepare a consolidated securities market code as announced in the budget. The new fiscal framework is likely to be presented in the monsoon session of Parliament.

Crowding Out
The budget has proposed a net market borrowing of ₹9.68 lakh crore for next fiscal year. The borrowing calendar for FY22 will be announced in March.

Discussions with Reserve Bank
Bajaj said the government has been in discussions with the Reserve Bank of India (RBI) on the borrowing plan. The central bank doesn’t anticipate that it will impact yields, but if needed, short-term borrowings can be used to create room for the private sector.

“If private investment comes in, we will be ready to cede space,” Bajaj said. The inclusion of Indian treasuries in foreign indices will lead to an influx of funds, he said, pointing out that the budget has granted full tax exemption to sovereign wealth funds and pension funds on income from infrastructure investment.

Downgrade Concerns
Investment bank Nomura said that chances of India’s credit rating being downgraded have increased with the budget estimating a fiscal deficit of 6.8% of GDP in FY22 on the back of 9.5% in the current year. “At the margin, we believe rating agencies may view the budget as slightly more negative, given their focus on medium-term fiscal finances. Of the two rating agencies with a negative outlook for India, we believe the budget may have increased the probability of a downgrade from Fitch,” Nomura said in a note.

Bajaj said the government will engage with international credit ratings agencies soon to explain budget details, adding that there was no worry on the fiscal front.

“We have said we will go to 4.5% (of GDP by FY26) and there is transparency as below-the-line items have been added," he said. “Besides, most of the extra spending is for capital spending.”

He said the budget’s revenue assumptions are conservative and the government should meet the targets. “Small (direct tax) measures will yield us revenue and GST buoyancy will also happen,” he said.

Budget Challenge
Bajaj said the biggest challenge of the budget is implementation. “The response has been overwhelming and unnerving. So, we have to deliver,” he said.