New Delhi: The government ramped up its borrowing plan by nearly a quarter for the fiscal first half to September to bridge its growing budget deficit, but bond yields eased as the additional borrowing was below expectations.
After a meeting with finance ministry officials, Reserve Bank of India (RBI) deputy governor Shyamala Gopinath said on Thursday that the government would borrow an additional Rs1.1 trillion ($22.6 billion) from next week up to 30 September.
That would take total April-September borrowing to Rs2.99 trillion, Rs58,000 crore more than the amount indicated in the tentative calendar in March.
The new figure means the government would have completed about 66% of its full-year record borrowing target of a record Rs4.51 trillion in the first half.
“If the government can raise additional revenue through disinvestment, second half borrowing may be lesser,” said Sonal Varma an economist at Nomura.
“Overall, the government and the RBI are trying to front-load the borrowing programme to avoid crowding out of private investments,” she said.
In its first budget last week after being re-elected with a stronger mandate, the Congress-party led government boosted spending on rural and infrastructure programmes, and projected the fiscal deficit to widen to 6.8% of gross domestic product, its highest in 16 years.
Asia’s third-largest economy is expected to post its weakest performance in seven years in 2009-10, which could hurt tax revenues. Analysts in a Reuters poll this week projected growth at 6.3%, below last fiscal year’s 6.7%.
Bond Buyback to Continue
Gopinath said the borrowing would be done in 10 tranches and a calendar would be published later on Thursday.
In its 6 July budget, the government raised its borrowing target by a quarter from an interim plan of Rs3.62 rupees, spurring market worry that private sector borrowers would be crowded out of the market and funding would become more expensive.
The yield on the most traded 6.90% bond maturing in 2019 eased five basis points to 6.79% from before hand and eased further to 6.78% in afternoon trade. It had ended at 6.85% on Wednesday.
“The market was expecting Rs15,000 crore of supply every week and now we have only around Rs11,000 crore of supply per week, so it is positive in the short term,” said Bekxy Kuriakose, head of fixed income at DBS Cholamandalam Asset Management.
Gopinath said the central bank would continue to buy back government bonds from the market, depending on liquidity conditions.
Cash conditions have been ample since April due to slower credit growth, efforts by banks to boost their deposits by offering higher return rates and higher spending by the government.
The central bank has bought back Rs29,850 crore via its open market operations so far in the fiscal year out of the first half target was Rs80,000 crore.