Center to borrow Rs 6.55 lakh crore through bonds in second half of FY 2024

The Finance Ministry on September 26 said the Center will borrow Rs 6.55 lakh crore by issuing government securities in the second half of 2023-24, with green bonds worth Rs 20,000 crore being part of the total programme.

The Centre’s full-year gross borrowing program in the Budget 2023-24 was pegged at a record Rs 15.43 lakh crore on a gross basis and Rs 11.8 lakh crore on a net basis.

Moneycontrol reported last week that the finance ministry is unlikely to make changes to the government’s borrowing plan for the second half of 2023-24 and raise Rs 6.55 lakh crore as per the schedule announced in late March.

The Reserve Bank of India (RBI) manages the borrowing program on behalf of the government by issuing bonds through auctions every week.

“These are our best estimates at this point in time,” Economic Affairs Secretary Ajay Seth told CNBC-TV18.

“It is not that these are just Budget projections. The projections at this point of time show that we can manage our market borrowings as indicated in the Budget. We do not need to overdo it. We do not see less than required either We also stand by the fiscal deficit figures declared,” Seth said, adding that he did not want to draw any conclusions from the small savings collection in the first four months of 2023-24.

The central government meets its fiscal deficit through borrowing from the bond market, income from small savings schemes and reduction in its cash balance. For 2023-24, its fiscal deficit target is Rs 17.87 lakh crore – or 5.9 per cent of GDP – of which a net Rs 4.71 lakh crore is targeted to come from small savings collections.

In October 2023-March 2024, the size of weekly government bond auctions will range from Rs 30,000 crore to Rs 39,000 crore. The last auction of the current financial year will be held on February 16.

“In response to market demand for long-term securities, a 50-year security will be issued for the first time,” the Finance Ministry said in a statement on Sept. 26.

The details of the securities to be issued are as follows:

* 6.11 percent borrowing will be through bonds maturing in 3 years

* 11.45 percent borrowing will be through bonds maturing in 5 years

* 9.16 percent borrowing will be through bonds maturing in 7 years

* 22.9 percent borrowing will be through bonds maturing in 10 years

* 15.27 percent borrowing will be through bonds maturing in 14 years

* 12.21 percent borrowing will be through bonds maturing in 30 years

* 18.32 percent borrowing will be through bonds maturing in 40 years

* 4.58 per cent borrowing will be through bonds maturing in 50 years

The government will issue green bonds of three maturity periods: Rs 5,000 crore each for 5-year and 10-year tenure and Rs 10,000 crore for 30-year tenure. The 30-year green bond comes after Life Insurance Corporation of India (LIC) and other major domestic pension funds expressed interest in investing in these instruments if issued with longer maturity periods, Moneycontrol reported in July. Was.

Earlier, the government had issued green bonds maturing in only 5 and 10 years in the last quarter of 2022-23.

The Finance Ministry also said, “The government will continue to make changes to the securities to streamline the redemption profile.”

Also read: Center expects annual borrowing to come down to Rs 12-13 lakh crore in next few years

Switch operations are conducted to ensure that the government does not have to pay too large a sum as principal when the bond matures in any given year. For example, bonds worth Rs 2.81 lakh crore are scheduled to mature during November 2023-January 2024. The 2023-24 budget had allocated Rs 1 lakh crore for switch operations for the current financial year. Of this, Rs 51,597 crore has already been used for these works.

Apart from bonds, the Center will also issue treasury bills worth Rs 3.12 lakh crore in the third quarter of 2023-24. Each of these weekly T-bill auctions will be worth Rs 24,000 crore.

To deal with any temporary mismatch in the government’s receipts and expenditure, the RBI has fixed the means and means advance limit to the Center at Rs 50,000 crore for October 2023-March 2024.

Market borrowing by the government is an important determinant of interest rates for the rest of the economy. With inflation expected to moderate in the coming months and the amount of bonds sold by the government expected to decline in the second half of the year, economists expect bond yields to decline, particularly in anticipation of two key events. : Reduction in the policy repo rate by the Monetary Policy Committee (MPC) of the RBI and inclusion of Government of India bonds in JP Morgan’s indices from June 2024.

Also read: After a decade, India’s global bond index inclusion journey finally ends

According to Soumya Kanti Ghosh, group chief economic advisor at State Bank of India, the 10-year government bond – which closed at 7.14 per cent yield on September 26 – could fall to 7 per cent by the end of 2023-24 and “positively exceed 7 per cent”. Should breach” percent” in the next fiscal year. Meanwhile, strategists at UBS have cut their 2024 forecast for the 10-year yield to 6.75 percent from 7 percent.

The MPC, which has left the repo rate unchanged at 6.5 per cent in its last three meetings after a 250 basis points hike in 2022-23, is expected to start reducing it in early 2024-25 after getting clarity on the sustained decline. Is. Inflation is towards RBI’s medium-term target of 4 per cent.

The next meeting of the rate-setting panel will be held from October 4-6.

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