The Centre will borrow Rs 7.24 lakh crore from the market in the first half of FY22, or just over 60% of the budgeted full-year target, economic affairs secretary Tarun Bajaj said on Wednesday.
He exuded confidence that the central bank will take appropriate measures to keep yields at reasonable levels, amid concerns of supplies outstripping demand. Some analysts say the benchmark 10-year government bond yields, which have hardened over the past two months, could inch up by about 20 basis points to 6.35% by the end of the June quarter.
The planned borrowing is higher than 56% in the first half of FY21, when a Covid-induced lockdown prompted the government to expand borrowing substantially in the second half as well. Still, it’s in sync with the usual pattern (60-65%) witnessed in most part of the last decade.
There will be 25 weekly issuances of securities, each in the range of Rs 26,000-32,000 crore, according to the borrowing calendar. The government reserves the right to exercise the green-shoe option to retain extra subscription up to Rs 6,000-8,000 crore in each weekly auction. The government may also modify the calendar if the need arises, according to an official statement.
The Centre has also raised its gross market borrowing in FY21 to Rs 13.71 lakh crore, against the revised estimate of `12.80 lakh crore, thanks to a drastic mismatch between the revenue collection and expenditure requirement in the wake of the pandemic. Still, it managed to borrow at a weighted average yield of 5.79% in FY21, the lowest rate in 15 years, he added.
The benchmark 10-year government bond yields, which had dropped below the 6% mark in early October 2020, started inching up since January to exceed 6% again on January 27, as supplies of papers outstripped demand. It opened at 6.15% on Wednesday.
Asked if the fiscal deficit for FY21 will substantially undershoot the revised estimate, given that it stood at only 76% of the full-year target until February, Bajaj said the deficit would still be close to the RE level (`18.48 lakh crore). This is because the government spent a lot in March, he added.
With net tax revenue (NTR) rising by 9.1% on year in April-February, FY21 NTR will overshoot the revised estimate of Rs 13.4 lakh crore by a good margin.
Bajaj also said the government has decided to keep the inflation target band unchanged at 4(+/-2)% under the medium-term framework (until March 2026) for the monetary policy committee, signalling that it doesn’t want to trim focus on price pressure in pursuit of economic growth.
The Centre is in talks with the Reserve Bank of India (RBI) on its plan to list certain categories of G-secs on global bond indices in FY22, he said. Although the government has not yet budgetted any amount to be raised via this route, the funds so raised will proportionately reduce its gross domestic market borrowing from the budgetted Rs 12.05 lakh crore in FY22, he had told FE last month. This will ease pressure on domestic borrowing as well.
As per the borrowing plan for H1, the government will issue securities with a maturity of 2, 5, 10, 14, 30 and 40 years and that floating-rate bonds will also be issued.
Commenting on the borrowing plan, Aditi Nayar, principal economist at Icra, said given the expected large supply of dated G-sec and state development loans in the coming months, as well as the likelihood of firming of global interest rates, yields are likely to rise in the absence of sizable and frequent open market operations. “In our view, the benchmark 10-year G-sec yield may harden to as much as 6.35% by the end of Q1 FY2022,” she said.
The government’s fiscal position in FY21 seems to have improved from its revised estimates. According to an FE analysis, the Centre may rake in additional net tax receipts of around Rs 90,000 crore in FY21 over the revised estimate (RE) of Rs 13.4 lakh crore, due to higher mop-ups from corporate and personal-income taxes. It may also get an additional Rs 30,000 crore from ‘Union excise duties’ net of transfers to the states.
However, the finances may come under strain again in FY22 if a second wave of the pandemic forced another lockdown, or other stringent measures, in key parts of the country, especially in Mumbai.