(Photo: Pradeep Gaur/Mint)
(Photo: Pradeep Gaur/Mint)

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

  • The government had borrowed just 47.5% of its budgeted full-year target (gross) through bonds in the first half of 2018-19
  • The ministry also may 'switch' up to 70,000 crore of bonds to manage the 2.37 lakh crore redemption pressure in the next fiscal

NEW DELHI : The Finance Ministry may borrow around 60% of the 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 % of the gross borrowing. We are looking at a borrowing of about 4.3 lakh crore in H1," said a source.

The government had borrowed just 47.5 % of its budgeted full-year target (gross) through bonds in the first half of 2018-19 -- much lower than the 60-65 % 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 70,000 crore of bonds to manage the 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 1.25 lakh crore. It had borrowed 1,00,000 crore from the NSSF as against the budgeted amount of 75,000 crore in the current fiscal.

In the current fiscal, the Centre had lowered the H2 borrowing target by 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 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 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 7.1 lakh crore for 2019-20, higher than 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 4.47 lakh crore as against the Budget Estimate of 4.07 lakh crore.

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

"Considering the need for income support to farmers, we have provided 20,000 crore in 2018-19 RE (Revised Estimate) and 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.

This story has been published from a wire agency feed without modifications to the text.