The government’s gross market borrowing target has been fixed at R3.72 lakh crore for the first half of 2017-18, which is 64% of the budgeted level of R5.8 lakh crore for the full year, economic affairs secretary Shaktikanta Das said on Tuesday. The target is marginally higher than the usual 60-62% for the April-September period in recent years, Das said after chairing a meeting of senior officials from the finance ministry and the Reserve Bank Of India here. The slightly higher than the usual borrowing target for the first half of 2017-18 has been fixed, taking into account the fact that 90% of the full-year redemptions of R1.57 lakh crore are scheduled for the April-September period next fiscal.
Also, since the Budget was advanced to February 1 this year from the traditional date of February 28, the funds have to be made available from the beginning of the next fiscal itself, he added. Das said the net average weekly borrowing in first half of 2017-18 will be R15,000 crore. For the full year, the net borrowing has already been budgeted at R4.23 lakh crore (a net supply of R3.48 lakh crore and a buyback of R75,000 crore). Das said four auctions will be of R18,000 crore each between April and September —one in April, two in July and one in end-August.
The secretary said focus will be on to elongate maturity profile in government borrowing in 2017-18. The average maturity of bonds to be issued will be 14.7 years in H1 of the next fiscal from around 10.5 years now. Das added that the government will borrow a net R26,000 crore through treasury bills in the first quarter of 2017-18. The ways and means advances limit for the first half of 2017-18 has been fixed at R60,000 crore, he said.
Analysts feel the issuance of more bonds by the centre in the first half of 2017-18 will not have much impact on yields, as it doesn’t reflect any heightened risks as such. “Rather, we are more concerned about the magnitude and timings of state governments’ bonds,” said Aditi Nayar, principal economist with ICRA. The state governments’ gross market borrowings are expected to rise to R4.5 lakh crore in 2017-18 from R3.7 lakh crore in 2016-17, on the expectation of rising fiscal deficits due to the pay revision and servicing of the UDAY debt, a spike in debt repayment from FY18 onwards and the exclusion of most state governments from investing in the National Small Savings Fund (NSSF) from April 1, 2016, Nayar said.
The borrowing target has been budgeted, keeping in mind the the government’s fiscal deficit target of 3.2% of GDP for 2017-18, against 3.5% in 2016-17. Importantly, while the centre has been adhering to fiscal discipline in recent years, the fiscal deficit of states is expected to touch a 13-year high of 3.4% of their GDP in 2016-17, threatening to reverse gains from the centre’s restraint. Between FY13 and FY17, while the centre has cut its fiscal deficit from 4.9% of GDP to 3.5%, states’ deficit has gone up from 2% of their GDP to an expected 3.4% this fiscal, according to a report by JP Morgan’s chief India economist Sajjid Chinoy and associate Toshi Jain.