The government is unlikely to increase its second half borrowing when it announces its full-year target this month, but will leave room for any hike towards the end of the fiscal year in March if needed, economists and market participants said.
The union government has already borrowed more than half of the planned full year borrowing of a record Rs 12 lakh crore in the fiscal first half that runs through September, and the government is likely to finish borrowing the rest by January, economists said.
"Given the highly uncertain outlook on the fiscal math, H2 borrowings might be completed by early 2021, with any larger-than-expected revenue shortfalls to be plugged thereafter by additional issuance," said Radhika Rao, an economist with DBS.
The majority of the 10 market participants and economists interviewed by Reuters agreed with this view, saying any hike in borrowing at this stage could cause a spike in bond yields as expectations of another increase later would rise.
"If government does increase the borrowing programme then RBI is likely to step up its open market operations (OMOs) to bring down yields," said Sameer Narang, chief economist at Bank of Baroda.
The central bank has mostly stuck to conducting special OMOs, such as the simultaneous buying and selling of bonds similar to the US Federal Reserve's "Operation Twist", and rejected all bids at its first outright OMO on Thursday, leaving market participants puzzled.
The RBI allowed banks to prematurely repay the money borrowed via long-term repo operations conducted earlier in the year, pulling out more than a trillion rupees from the system, giving it more room to conduct OMOs, traders said.
The government has also borrowed a significantly higher amount through short-term treasury bills in the first half, which will be due for maturity in the next six months, increasing pressure on government finances.
Revenue collections too have been muted as the nationwide lockdown at the start of the fiscal year meant several industries were non-operational. Coronavirus cases have continued to climb as the country opens up for business.
India has the world's second highest number of infections, and economists have also argued the need for another round for fiscal stimulus for the economy, that is expected to contract by around 10 per cent in the current year.