Govt eyes fis­cal fit­ness with lower bor­row­ings

Cen­tral gov­ern­ment plans to cut bor­row­ings by ₹ 70,000 crore in cur­rent fi­nan­cial year, sig­nalling con­fi­dence on fis­cal deficit CALM­ING MAR­KET’S NERVES

Mint Asia ST - - News - BAY SIT R ANJAN M ISHRA

The gov­ern­ment will cut bor­row­ings by ₹ 70,000 crore in the cur­rent fis­cal year, sig­nalling its con­fi­dence in keep­ing the fis­cal deficit un­der con­trol.

Eco­nomic af­fairs sec­re­tary Sub­hash Chan­dra Garg said on Fri­day that gross bor­row­ing will be at ₹ 2.47 tril­lion for the Oc­to­ber-march pe­riod. The bor­row­ing pro­gramme will be spread across 21 weekly auc­tions of gov­ern­ment bonds, end­ing the cal­en­dar on 8 March, Garg added.

The cut in bor­row­ings will be matched by a re­duc­tion in buy­back of gov­ern­ment se­cu­ri­ties and en­hanced flow from small sav­ings schemes.

The gov­ern­ment has also de­cided to in­tro­duce re­tail in­fla­tion-in­dexed bonds dur­ing the sec­ond half of the fis­cal.

“Since this will be a new in­stru­ment, we ex­pect one or two is­sues to be made by endMarch.”

While an­nounc­ing its bor­row­ing pro­gramme of ₹ 2.88 tril­lion for the April-septem­ber pe­riod, Garg had said in March that over­all bor­row­ing dur­ing the fi­nan­cial year will be ₹ 50,000 crore less than the bud­geted 10-year bond yield (%) 7 7.33 ₹ 6.05 tril­lion. With a fur­ther re­duc­tion of ₹ 20,000 crore, planned gross mar­ket bor­row­ing in 2018-19 stands at ₹ 5.35 tril­lion, which in­cludes buy­backs and re­pay­ments, com­pared to the ₹ 5.99 tril­lion bor­rowed last year.

Garg said the gov­ern­ment does not an­tic­i­pate any fis­cal slip­page in 2018-19.

“We be­lieve rev­enues will be as per the bud­get es­ti­mates. Ex­pen­di­ture pro­gramme is 8.02 also on track even af­ter in­clud­ing ex­pen­di­ture re­lated to higher min­i­mum sup­port price and Ayush­man Bharat.”

Small sav­ings schemes will pro­vide an al­ter­na­tive which should help the gov­ern­ment avail a higher net amount from the Na­tional Small Sav­ings Fund (NSSF), com­pared to its tar­get of ₹ 75,000 crore in 2018-19, Garg added.

The fi­nance min­istry on Thurs­day in­creased in­ter­est rates on small sav­ings schemes, which are linked to the yields of gov­ern­ment se­cu­ri­ties, or G-sec, by 30-40 ba­sis points for the quar­ter start­ing 1 Oc­to­ber.

This was largely in line with the up­trend dis­played by G-sec yields of var­i­ous ma­tu­ri­ties dur­ing the trail­ing three-month pe­riod.

Fi­nance min­is­ter Arun Jait­ley ear­lier this month sent a strong sig­nal of fis­cal pru­dence by com­mit­ting to the tar­gets for fis­cal deficit as well as cap­i­tal ex­pen­di­ture in a pre-elec­tion year.

“Gov­ern­ment is con­fi­dent of meet­ing the 3.3% (of GDP) 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 had said.

Aditi Na­yar, prin­ci­pal econ­o­mist at Icra Ltd, said that with the un­cer­tainty re­gard­ing the size of the sec­ond half mar­ket bor­row­ings out of the way, bond yields go­ing for­ward will be guided by the out­look for in­fla­tion risks such as crude oil prices and the ru­pee, the pipe­line of open mar­ket op­er­a­tions, as well as the emerg­ing in­for­ma­tion on the bal­ance of var­i­ous fis­cal risks.

“The mar­ket would con­tinue to mon­i­tor the like­li­hood of meet­ing the bud­geted tar­gets for rev­enues re­lated to the goods and ser­vices tax, div­i­dends and prof­its, and dis­in­vest­ment, and as­sess whether the out­lays re­quired for re­vised min­i­mum sup­port price, the NHPS, fuel and other sub­si­dies, and bank re­cap­i­tal­i­sa­tion would prove to be ad­e­quate,” she added.

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