The Centre also expects substantial cash surplus by the end of the year and will undertake big switch/buyback operations of bonds, finance secretary Arvind Mayaram told reporters after a meeting of finance ministry and the Reserve Bank of India to decide the borrowing calender for October 2014 to mid-February 2015.
We have also decided to release a calender for switch and buybacks from next fiscal onwards, Mayaram said. This announcement is significant as till now, the RBI, in consultation with the government, has been deciding on a weekly basis on buying back government securities, after closely watching the market conditions. A calender means it will have a pre-determined plan even on buybacks.
The move is not only due to redemption pressure, but alsoo shows that Indias debt market has matured & come of age. It demonstrates a deepening of our market operations, a senior finance ministry official involved in the matter said.
Buybacks will help the government to deal with big redemptions. The yield curve will also develop which is good for the bond market, said NS Venkatesh, head of treasury at IDBI Bank
Officials also said that the reduction in borrowing will not change the FY15 fiscal deficit target of 4.1% of GDP. We are very confident that we will be able to manage without additional borrowing, Mayaram told reporters.
As per the FY15 budget, the centres budgeted gross borrowing estimate was R6 lakh crore, while the net borrowing estimate is R4.61 lakh crore. The first half gross borrowing calender was pegged at R3.68 lakh crore, about to be borrowed through 24 weekly auctions with maturity ranging from five to twenty years. Excluding repayments, first-half borrowing was pegged at R2.93 lakh crore.
On back of a R52,679 crore dividend that the RBI paid to the central government for its accounting year ending June 30, 2014, the RBI cut R16,000 crore from its weekly calender for August and September, thus effectively its first half reducing its first half gross borrowing to R3.52 lakh crore, about 58.6% of the full-year gross borrowing estimate. Hence, some analysts were expecting the second half borrowing to increase to R2.48 lakh crore from R2.32 lakh crore.
The government had the choice of adding the entire R16,000 crore of borrowing that they deferred but they seem to have taken the middle path. On balance I guess this borrowing is reasonable, said Hitendra Dave, head of global markets at HSBC.
The governments cash position may also improve in coming months. Officials are optimistic of outstripping the PSU disinvestment target of R43,425 crore, and major oil and fertiliser subsidies are expected to come down because of diesel decontrol and low crude oil prices. But tax collections have been lower than targeted so far this year. Economic recovery has been muted and a drought in some parts of the country has hurt agricultural output.
* Government to borrow R2.4 lakh crore in second half
* Average weekly borrowing to be R14,000-15,000 crore
* Centre confident will manage without extra borrowing for the rest of FY15
* Government says no additional borrowing via T-bills in Oct-Dec
* Government says no gilt auction will be held next week
* Expects to end this financial year with good cash balance
* Plans to raise gilt buyback, switches next year onwards
* Govt to have 1-year calendar on gilt switch, buyback FY16