Govt to borrow Rs 4.88 trn, 62.56% of gross target in April-Sept period

Economic Affairs Secretary Atanu Chakraborty
The Centre will borrow Rs 4.88 trillion, or 62.56 per cent of the 2020-21 gross borrowing target of Rs 7.8 trillion, in April-September, the government and the Reserve Bank of India (RBI) said on Tuesday.

In FY20, the finance ministry had issued bonds worth 62.25 per cent of its full-year target of Rs 7.1 trillion. Contrary to expectations of many in the markets, the Centre has not increased its borrowing plans for the fiscal year starting April 1, instead relying on front-loading G-sec issues around the same level as the first half of 2019-20.

When asked if there were plans to increase borrowing to help fund further Covid-19 stimulus packages, Economic Affairs Secretary Atanu Chakraborty said the borrowing programme had factored in all the possibilities of a further stimulus boost.

“The government is committed to meet its requirements, whether on account of health care commitments or on account of protecting the economy, and also providing a necessary stimulus at any point of time. The borrowing programme has been designed in that fashion,” Chakraborty said.

The Centre will ramp up its weekly borrowing though. The size of G-sec tranches for April-September will be Rs 19,000-21,000 crore, compared with an average weekly borrowing of Rs 17,000 crore in 2019-20. “The borrowing is in accordance with usual practice,” said Jayesh Mehta, head of treasury, Bank of America.

“The expectation in the market is that if there is any extra borrowing due to the Covid-led fiscal pressure that can be financed directly through the RBI. Otherwise, the market is capable of handling borrowing of Rs 20,000 crore every week,” Mehta added.

The RBI also increased the ways and means advances for the Centre to Rs 1.2 trillion for the first half, up from Rs 75,000 crore in the first half last year. The increase in ways and means advances allows the government to borrow more temporary money from the RBI. 

“The RBI may trigger fresh floatation of market loans when the Government of India utilises 75 per cent of the WMA limit,” the RBI said.

A look at the borrowing calendar shows that of the Rs 4.88 trillion g-secs to be issued, around Rs 3.06 trillion, or nearly 63 per cent, will be eligible for borrowing under the “fully accessible route”, notified by the RBI on Monday.

The RBI had said that 5-year, 10-year, and 30-year g-secs will come under that route and will be eligible for investment under the fully accessible route for non-resident investors. In other words, there will be no foreign portfolio investment limits on these issues. These securities will continue to be eligible for investment by residents.

This is the first step towards Indian g-secs being listed in global bond indices as the Centre looks to attract excess cheap liquidity in overseas bond markets, following an announcement on the same by Finance Minister Nirmala Sitharaman in her 2020-21 Union Budget. How much of the Rs 3.06 trillion foreign portfolio investors will pick up depends on their appetite and that of domestic investors.

“With so much of banking system liquidity, coupled with an attractive spread of close to 2 per cent over the repo rate, g-secs will find investors. Additionally, the relative attractiveness of Indian bonds has improved too, followed by unprecedented liquidity pumped in by major central banks globally," said Soumyajit Niyogi, associate director, India Ratings and Research.

At the media briefing on the borrowing calendar, Chakrabory was also asked if the revised fiscal deficit target of 3.8 per cent of GDP would be met. This was on the day the April-February fiscal deficit data indicated that the Centre will need to garner revenue in excess of Rs 5 trillion in March, and may have to go for substantial expenditure cuts.

He indicated there would be no fiscal slippage. “A very realistic estimate had been made of the revenues, as well as the proposed expenditures. Additionalities were also provided and on account of that, the forbearance of .5 per cent was taken in the budget. Therefore, for 2019-20, the issue of fiscal deficit is not much in question,” Chakraborty said.

Chakraborty also said as of now, the switch and buyback plan for 2020-21 was around Rs 2.7 trillion. When asked about market rumours that the Centre might directly sell g-secs to the RBI, he said there was no such plan.


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