We have pre-paid large chunk of high-cost govt debt, to help state borrowings: FM

New Delhi: The government has pre-paid a large chunk of its high-cost debt this financial year with a favourable effect to the borrowing cost of Central and state governments, finance minister Nirmala Sitharaman said on Tuesday. 

Replying to the debate in Lok Sabha on the second ‘supplementary demands for grants’ for FY25 presented on Monday, Sitharaman said that the request to Parliament involved what is called 'technical supplementary demands' of over ₹6.27 trillion. 

These are spending plans financed by savings or extra revenue receipts and do not entail net cash outgo to the exchequer. 

The minister said that of this, ₹5.54 trillion went for re-payment of debt. That included a buy-back of over ₹85,150 crore of government securities under market loans and redemption of ₹98,745 crore of 91-day treasury bills and ₹four trillion of 14-day treasury bills, the document presented in Parliament showed.

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“Essentially we are removing the high-cost debt from our shoulders by advance redemption in those debts,” Sitharaman said.

“I'm glad to say to this House, many members would have noticed that because we have done this redemption, the borrowing rates for government have come down. When states go to the market with their bonds, their rates also will be far less. So, it is a constant endeavor to make sure that we do not have excess demand,” said the minister.

The government now presents only two additional spending requests to Parliament, unlike the earlier practice of presenting three supplementary demands for grants. The idea is to follow fiscal discipline.

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Responding to Revolutionary Socialist Party MP N.K. Premachandran’s comment that over ₹6 trillion of technical supplementary demands was huge, Sitharaman said that ₹5.5 trillion went for repayment of debts. 

Debt management is a very dynamic process and it aims to reduce the cost of borrowing for both the both the Union and the states, a task that needs flexibility, the minister said.  

Additional spending

The government’s additional spending plan involved a net cash outgo of ₹51,463 crore in FY25 to meet the funding requirements of mainly fertilizer, food and cooking gas subsidy and defence pension, Mint reported on Monday. 

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Of this, ₹14,100 crore is for fertilizer subsidy, ₹8,400 crore for defence pensions, ₹13,400 crore for other pension requirements, ₹5,300 crore for the telecom sector and over ₹2,100 crore for the farm sector. Petroleum sector gets an additional ₹1,000 crore, including for cooking gas subsidy for poor households.