Govt may reduce market borrowings for October-March
MUMBAI/NEW DELHI: The government may marginally reduce its market borrowings for the second half (October-March) of the current fiscal year to contain high bond yields and give confidence to the market that the fiscal situation is under control. Finance ministry and RBI officials are likely to meet on September 28 to finalise the borrowing calendar for the rest of the year.
“A final decision on the extent of cut in market borrowings will be taken next week,” a government official said Friday, on condition of anonymity.
The government chose to borrow ₹2.88 lakh crore or 48% of its annual target in the first half of this fiscal year, departing from its usual practice of frontloading of borrowing, amid rising yields and diminishing demand for government securities. For fiscal 2019, the total gross borrowings through government securities is budgeted at ₹6.05 lakh crore, higher than last year’s revised estimate of ₹5.99 lakh crore.
Small savings schemes may provide an attractive alternative which should help the government avail a higher net amount from the National Small Savings Fund (NSSF), compared to its target of ₹1 lakh crore in 2018-19.
“This may result in the government announcing a market borrowing programme for H2 FY2019, which may be smaller than what has been expected so far by the markets. This may in turn help to contain G-Sec yields to an extent going forward,” said ratings agency ICRA Ltd.
After keeping unchanged for two quarters, finance ministry on Thursday hiked interest rates on small savings schemes, which are linked to the yields for Government of India securities (G-Sec), by 30-40 basis points (bps) for the quarter starting 1 October. This is largely in line with the uptrend displayed by G-Sec yields of various maturities, during the trailing threemonth period.
Finance minister Arun Jaitley last week sent a strong signal of fiscal prudence by committing to the fiscal deficit as well as capital expenditure targets in a preelection year.
“Government is confident of meeting the 3.3% fiscal deficit target. So far, the government has spent 44% of the budgeted capital expenditure till August 31 and there will be no cuts in capex by the end of this year,” Jaitley said.