FinMin may borrow 60% from market for H1, switch bonds up to Rs 70k cr

Last Updated: Mon, Mar 11, 2019 11:51 hrs
Rupee (AP Photo)

New Delhi: The Finance Ministry may borrow around 60 per cent of the Rs 7.1 lakh crore budgeted gross borrowings for fiscal 2019-20 in its first half (H1) from the market to meet part-redemption, expenditures for welfare schemes and keep the fiscal deficit in check.

"H1 borrowing could be 50-60 per cent of the gross borrowing. We are looking at a borrowing of about Rs 4.3 lakh crore in H1," said a source.

The government had borrowed just 47.5 per cent of its budgeted full-year target (gross) through bonds in the first half of 2018-19 -- much lower than the 60-65 per cent in the corresponding period over the previous five years -- and had dipped more into the National Small Savings Fund (NSSF) to finance the fiscal deficit as it sought to ease pressure on the bond market that has witnessed a spurt in yield that time.

This may not happen this fiscal as this is a poll year and expenditures related to welfare schemes like the direct income for farmers will be executed in the first half, so funds would be needed even though these are budgeted expenditures.

The ministry also may 'switch' up to Rs 70,000 crore of bonds to manage the Rs 2.37 lakh crore redemption pressure in the next fiscal and also will seek the Reserve Bank of India's (RBI) open market support in a large-scale amount to contain the bond yields and maintain liquidity.

The government may also dip into the small savings schemes to fund its fiscal deficit during the year to draw Rs 1.25 lakh crore. It had borrowed Rs 1,00,000 crore from the NSSF as against the budgeted amount of Rs 75,000 crore in the current fiscal.

In the current fiscal, the Centre had lowered the H2 borrowing target by Rs 70,000 crore by opting for more 'switch' and cut in buybacks of its bonds.

Sources said these may be discussed while finalising the borrowing calendar for the first half of the next fiscal with the RBI slated towards the end of the month.

The Finance Ministry and the RBI will meet towards the end of this month to finalise the H1 (April-September) calendar borrowing of fiscal 2019-20, Department of Economic Affairs Secretary Subhas Chandra Garg told IANS. But there were no further details from him on the roadmap on the borrowing plan.

Officials said the government plans to 'switch' over Rs 50,000 crore of bonds where it will issue longer dated securities against securities maturing in the near term. It is a variant of 'roll over' strategy by governments where immediate payments due to redemptions are spread over a longer period.

The 'switch' transaction generally happens with the RBI and does not disturb the market for funds. In the current fiscal, the switch was to the tune of Rs 28,000 crore.

Budget 2019-20 documents states gross borrowing, or the total public debt which the government is liable to pay and which is accumulated with each passing year, would be Rs 7.1 lakh crore for 2019-20, higher than Rs 5.71 lakh crore estimated this fiscal. According to the Revised Estimate, the net borrowing, or the amount borrowed during the the fiscal to finance the fiscal deficit, was raised to Rs 4.47 lakh crore as against the Budget Estimate of Rs 4.07 lakh crore.

The fiscal deficit for the current fiscal is expected to be slightly higher at 3.4 per cent. For 2019-20, the government also retains the fiscal deficit at 3.4 per cent of the gross domestic product. Both fiscals deficits are revised upwards.

"Considering the need for income support to farmers, we have provided Rs 20,000 crore in 2018-19 RE (Revised Estimate) and Rs 75,000 crore in 2019-20 BE (Budget Estimate), which raised the fiscal deficits," then Finance Minister Piyush Goyal had said in the interim Budget earlier.

The government raises funds from the market to fund its fiscal deficit through dated securities and Treasury bills.

(Anjana Das can be contacted at anjana.d@ians.in)