The government will borrow Rs 2.88 lakh crore or 47 per cent of total budgeted gross borrowing during April-September, the first half of 2018-19.
The government and the Reserve Bank of India (RBI) have decided to make the gross borrowing less by Rs 50,000 crore by reducing around Rs 25,000 crore from buyback and the rest from small savings schemes.
“The government intends to use larger inflows from small savings schemes to fund its fiscal deficit during the year. The government will borrow Rs 1 lakh crore from NSSF as against budgeted amount of Rs 75,000 crore,” the government said in a release on Monday.
The fiscal deficit – a measure of how much the government borrows in a year to meet part of its spending needs – target for 2018-19, however, continues to remain at 3.3 per cent of the GDP, Economic Affairs Secretary Subhash Garg said.
In the last five years, the government typically conducted 60-65 per cent of its market borrowing in the first half of the year. In 2017-18, the government had proposed to borrow Rs 3.72 lakh crore or 64 per cent of the gross borrowing in April-September.
“This represents substantial reduction in borrowing from last year,” Garg said.
According to Union Budget, gross borrowing via gilts is pegged at Rs 6.05 lakh crore and net borrowing is seen at Rs 4.62 lakh crore in 2018-19.
The net borrowing for April-September will be close to Rs 2 lakh cr, Garg said.
The Centre also plans to issue more Floating Rate Bonds (FRBs) and introduce CPI (Consumer Price Index) linked bonds, both put together, to the extent of 10 percent of issuances during the year.
Due to hardening yield in the bond market, the government also plans to introduce two benchmarks during April-September– 2-year and 5-year–to meet the market demand.
“More issuance will be planned in short and long-term maturity bucket, reducing the issuance in medium term segments of 10-14 years to around 29%, as against more than 50% issuances in previous years. Share of issuances under different maturities bucket will be 1-4 years: 8.3 %; 5-9 years: 25%; 10-14 years: 29.2%; 15-19 years: 14.6 %; and more than 20 years: 22.9%,” the government said.
Garg explained that issuing bonds in 1-4 year bucket and reducing concentration in 10-14 year bucket are meant to provide supply that will match the demand better, which in turn will have a soothing effect in the market.
He further said that the government is confident that it will be able to meet its expenditure requirement without getting using overdraft facilities.
“We have one more instrument which will be used (later) -cash management bill. With WMA (ways and means advances) and cash management bill, the government will be able to fund expenditure with reduced level of borrowing,” Garg said.moneycontrol