The government on Wednesday said it will stick to the 12 trillion borrowing plan it had set in May, a decision that will help calm bond market investors who were fearing a further increase in the supply of government bonds to fund a second round of fiscal stimulus.

“We have decided to continue with the same figure of 12 trillion for the full year, which means our borrowing for the second half would be 4.34 trillion, or 36.16% of the 12 trillion to be borrowed for the whole year," economic affairs secretary Tarun Bajaj told reporters.

The devastating impact of the coronavirus pandemic and the stringent national lockdown had prompted the Union finance ministry to expand the original borrowing plan by about 54% to 12 trillion in May as it needed to spend more on humanitarian and economic relief amid a sharp decline in revenue collections.

Bond traders feared that the borrowing for the October-March period would increase to as much as 6 trillion, according to a Bloomberg survey.

Economists said that the unchanged borrowing calendar may turn out to be a case of postponing the inevitable, given the considerable fiscal stress that is building up amid tepid tax collections and an unabated increase in coronavirus infections.

“It is possible that the government may prefer to exercise the greenshoe options as has been done in several recent auctions. Nevertheless, the expectations of further fiscal support to prop up the arduous recovery should be tempered," said Aditi Nayar, principal economist at rating agency ICRA Ltd.

Responding to a question on whether the government has factored in the need for a second stimulus package, Bajaj said that the needs of the current fiscal year have been factored in the borrowing target.

“I do not think that immediately we have to increase it. In this year, from some areas, we have mobilized extra revenue. I am confident that we will be able to manage with the 12 trillion plan," said Bajaj.

Retaining the borrowing plan may be a step to avoid the crowding out of companies from the debt market during a recovery.

Bajaj said that the decision to maintain the borrowing level was taken in view of the improvement in revenue receipts, in line with the opening up of the economy from June onwards, and the re-prioritization of expenditure to focus areas, curtailing avoidable spending in other areas.

In the April-August period, the fiscal deficit of the Centre scaled 8.7 trillion, or 109.3% of the full-year target, as tax collections remained under pressure, data released by the Controller General of Accounts, or CGA, showed on Wednesday.

Fiscal deficit was 7.96 trillion, or 78.7% of the budgeted estimate in the year-ago period.

Revenue receipts were at 3.71 trillion, or 18% of the budgeted target during April-August, while total expenditure was at 12.48 trillion, or 41% of the budgeted estimate.

The finance ministry expects a recovery in the third and fourth quarters after the 23.9% contraction in the gross domestic product, or GDP, in the April-June period.

In the monthly economic review for August, the finance ministry said that India was witnessing a ‘sharp V-shaped recovery’ but pointed out that it was critical to re-orient policies towards the reconstruction of the economy, with attention on agrarian supply chains, factor markets, infrastructure, start-ups, financial inclusion, skilling and health care.

India’s eight key infrastructure industries, which account for two-fifth of industrial output, continued to contract in August at 8.5%, compared with a revised 8% contraction in July, official data showed.