The government has kept its borrowing programme limited to Rs 7.1 trillion in the current fiscal year, and Rs 8.1 trillion in the next fiscal year, including the buyback of Rs 30,000 crore. The government borrows from the market for the buyback, but it is not doing so for the next year. It, instead, will straightaway buy bonds of Rs 30,000 crore from the market, reducing the gross borrowing programme to Rs 7.8 trillion.
Among other measures, the government said it would float specified bonds where FPIs would be allowed full access, along with local investors. Besides, the government also proposed to float debt-exchange traded funds with government securities as underlying, which should allow retail participation in government debt market, noted rating agency ICRA.
“However, the proposal to increase the FPI holding to 15 per cent of outstanding bonds from 9 per cent now will have a positive impact on debt capital markets
over the medium term as the current utilisation is estimated at about 6.1 per cent,” it said.
The bond market is, however, concerned if the government will be able to mobilise Rs 1.2 trillion from small savings between January and March. If the government is not able to mobilise so much, then there is a possibility it will have to hit the bond market route in March.
The market, on the other hand, is confident the RBI will continue with its Operation Twist kind of operations where it bought long-term bonds and sold short-term bonds.
In the last auction, it bought the whole Rs 10,000 crore planned, but sold a little more than Rs 2,000 crore, which means it bought more than it sold to support bond yields.
As a result of such operations, bond yields have remained soft, and the market expects the RBI will continue with its support in the next fiscal year as well.