Govt front-loads borrowing, to raise Rs 2.99 lakh cr in H1

Govt front-loads borrowing, to raise Rs 2.99 lakh cr in H1
The Financial Express, July 17, 2009, Page 1

fe Bureau, New Delhi

The government will raise two-thirds of its planned annual borrowing of Rs 4.51 lakh crore in the first half of the current fiscal. At a meeting on Thursday, the finance ministry and RBI resolved to borrow Rs 2.99 lakh crore in the April-September period, higher by Rs 58,000 crore, or 24%, of the Rs 2.41 lakh crore indicated in March. These funds will be used to bridge the fiscal deficit, which is estimated to widen to 6.8% in 2009-10.

Since the government has already raised Rs 1.89 lakh crore (this includes Rs 12,000 crore in bond sales planned for Friday) from the market, it will borrow the remaining Rs 1.1 lakh crore in ten tranches beginning next week until the end of September, RBI deputy governor Shyamala Gopinath said.

“There is ample liquidity in the system,” said Gopinath, assuring markets that the government’s borrowing programme would not be disruptive. Banks have parked an average of Rs 1.2 lakh crore in funds every day with RBI since April 1, against Rs 46,100 crore in the previous three months. RBI will also continue to support the market by buying bonds in the secondary market.

The bond market cooled off on Thursday as the government’s additional borrowings were below market expectations. Yields on the benchmark ten-year government bond closed at 6.79% on Thursday, from its previous close of 6.85%. However, traders said the initial optimism would not last and that yields would continue to remain under pressure.

According to the borrowing schedule, the government will raise the remaining one-third, or Rs 1.52 lakh crore, between October and March. “It would be quite challenging to manage second-half borrowings unless the government is able to raise resources from other avenues like disinvestment,” said DK Joshi, principal economist at ratings agency Crisil.

A substantial portion of the government’s debt is being raised in the first half of the fiscal to ensure that enough funds are available to the private sector in the remainder of the year, when the economy is expected to pick up steam. Once this takes place, credit growth is expected to rise significantly from 15.65% for the fortnight ended July 3.

“The recovery momentum is likely to be lower in the first half. So, in the second half, when we expect stronger recovery, the government’s borrowing will not interfere with private demand,” confirmed Bank of Baroda chief economist Rupa Rege Nitsure.

The Centre’s debt sale includes seven tranches of Rs 12,000 crore each between July 18 and September 4. Another Rs 11,000 crore, Rs 7,000 crore and Rs 8,000 crore will be carried out between September 4 and September 25, the finance ministry stated. The government paper will be of 5-20 years maturity. The government will also roll over treasury bills worth Rs 86,500 crore in 11 auctions between July 22 and September 30.

In a separate statement, RBI said it would continue its open market operations (OMOs) and conduct auctions every alternate week. Under these OMOs, the central bank buys government bonds in the secondary market to enhance liquidity and support the debt market. RBI had said in March it would buy bonds worth Rs 80,000 crore through OMOs in April-September. So far, the central bank has bought government paper worth Rs 29,850 crore through these auctions.