PROPOSED DTC MAY BE IMPLEMENTED IN PARTS BY GOVT

The wait for the proposed Direct Tax Code (DTC) could get longer because the Centre is of the view that the recommendations on it are too “radical” and require more deliberation. It is also in favour of implementing in parts the proposals made by the task force. “Instead of making the report public, the government would pick some recommendations and implement them,” said a source.

Bond yields fell 10 basis points as a reaction to measures taken by the government for opening up domestic bond markets to overseas investors, including the idea of inclusion of Indian bonds in global bond indices.

The yields on the 10-year bond fell to 6.50 per cent, from 6.60 per cent on Friday, as the markets were happy there won’t be any extra borrowing in this fiscal year, as the balance would be taken from small savings.

The government has kept its borrowing programme limited to ~7.1 trillion in the current fiscal year, and ~8.1 trillion in the next fiscal year, including the buyback of ~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 ~30,000 crore from the market, reducing the gross borrowing programme to ~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 ~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 yields on the 10-year bond fell to 6.50 per cent, from 6.60 per cent on Friday