Union Budget 2021 India: A senior government official said the flow of funds through such a route will also offer the Centre an opportunity to structure its market borrowing plan in such a manner that the borrowing cost, too, remains reasonable.
Indian Union Budget 2021-22: The Budget for 2021-22 is likely to clearly spell out the government’s intent on listing certain categories of government securities on global bond indices. The plan is aimed at not just financing a portion of its elevated fiscal deficit in the aftermath of the Covid-19 outbreak, but deepening the country’s bond market.
“The listing plan has been discussed in detail with the RBI and other stakeholders and its potential impact on the financial sector has also been debated well. Broader details could be announced in the Budget,” said a source.
The government will issue rupee-denominated bonds in global markets to mitigate exchange rate risk.
Earlier this fiscal, chief economic advisor Krishnamurthy V Subramanian had told FE that theoretically, borrowing of around $60 billion was possible through listing government bonds on the global indices. About $4 trillion of money tracks overseas bond indices. India is expected to get a weight of around 1.5-3%. Even if it gets 1.5%, that would translate into $60 billion, he had pointed out. Of course, this is the potential for which the country has to prepare itself with accompanying regulatory set-up.
A senior government official said the flow of funds through such a route will also offer the Centre an opportunity to structure its market borrowing plan in such a manner that the borrowing cost, too, remains reasonable.
As a first step towards finding a place in global indices, the Budget for 2020-21 had proposed to remove limit on foreign investment in some government securities. Subsequently, in March last year, the Reserve Bank of India announced the opening up of key government securities to full foreign investment without any ceilings.
The Centre had budgeted to borrow Rs 7.80 lakh crore in 2020-21 but was forced to raise it by as much as 54% in May last year to Rs 12 lakh crore, as the Covid-19 outbreak and a consequent pan-India lockdown badly hit its revenue collections, even though the government had to roll out relief package to soften the blow of the pandemic.
Several analysts have projected fiscal deficit to drop from about 7% (double the budgetary goal) in 2020-21 to 5-5.5% in the next fiscal, as nominal GDP rebounds. The latest Economic Survey has forecast a 15.4% growth in nominal GDP for 2021-22, against a 4.2% contraction this year.
Still, the fiscal deficit, as percentage of GDP, will be the highest since the 2011-12 level of 5.9%. The listing of G-Secs, therefore, remains critical to developing a stable source of funding for the government. Also, it remains key to developing a solid corporate bond market in the country.