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The Union finance ministry has announced it would stick to its earlier borrowing programme in the second half of the current financial year, the highlight of which is going to be the issuance of 50-year securities, a first in the history of the country. When the ministry made the announcement on September 26, finance experts said that the instrument would test investor appetite for such long-term securities which would, in a way, also demonstrate long-term confidence in the inherent strength of the country’s economy.
The government would go for a total market borrowing of Rs 6.55 lakh crore in H2. Green bonds – bonds that raise money for environment or climate-related projects – worth Rs 20,000 crore would be a part of this amount, the ministry said. An amount of Rs 16,000 crore was raised via green bonds a year ago.
Incidentally, the Reserve Bank takes care of the borrowing programme by conducting auctions of government bonds every week.
“It’s not just that these are budget estimates. Estimates at this point in time are showing we can manage our market borrowings as indicated in the budget. We don’t have to overshoot it. We don’t see as much under requirement as well. We also remain firm on the fiscal deficit number announced”, economic affairs secretary Ajay Seth said. However, he was not ready to comment on the collection through small savings in the first four months of FY24.
However, the most interesting part of the borrowing programme will the introduction of 50-year bonds.
According to a report by The Economic Times, India Ratings chief economist D K Pant felt that the 50-year bond would test the investor appetite for such long-term papers. He also remarked that the step was driven by the intention to develop the market for such instruments.
Incidentally, the governments of Austria, Argentina and Mexico have issued bonds with 100-year tenure. Even companies such as Coca-Cola and Walt Disney Company have issued 100-year bonds. However, though the bonds issued by Walt Disney Company in 1993 would mature in 2093, but the company could pay them back after 30 years.
The government had announced that it would raise debts of Rs 15.43 lakh crore in the entire year, out of which Rs 8.88 lakh crore market would be raised in the first six months.
“The government is broadly sticking to its borrowing plans, showing fiscal prudence. This should help calm nerves for markets amid rising global headwinds of higher oil prices and US rates,” said Rahul Bajoria, head, EM Asia (ex-China) Economics at Barclays.
Incidentally, the yield on 10-year benchmark bonds inched down to 7.14% on September 26 from 7.15% on the preceding day.
Only last week, JP Morgan Chase & Co added Indian government bonds to its flagship emerging market index, which, experts are almost unanimous, could trigger inflows of about $30 billion in fresh capital flows in the country.
The Centre’s fiscal deficit stood at 33.9% of the full-year projections just at the end of the four-month period between April and July. It was a mere 20.5% a year ago and triggered concern about the ability of North Block to contain fiscal deficit at the projected level of 5.9% of GDP in FY24.
India Ratings chief economist D K Pant said, “Adherence to budgeted FY24 market borrowing target is likely to be a neutral event for the bond market. Actual market borrowing, however, will hinge on the performance of the National Small Savings Fund.”
The borrowing in the second half of the fiscal is expected to be completed in 20 weekly tranches of Rs 30,000-39,000 crore.
Of the total amount to be raised, 22.90% of it would be raised through 10-year maturity securities. Next in weightage would be papers of 40-year maturity (18.32%), 14-year (15.27%), 30-year (12.21%), five-year (11.45%), seven-year (9.16%) and three-year (6.11%).
The smallest share 4.58% would is scheduled to be raised through the 50-year maturity (4.58%) bonds.
“The government will continue to carry out switching of securities to smoothen the redemption profile. Out of the Rs 1,00,000 crore of budgeted switch amount, Rs 51,597 crore of switch auctions have already been conducted and the balance amount of switch auctions will be conducted in H2,” the finance ministry said on Tuesday.
ICRA chief economist Aditi Nayar remarked that the borrowing for the January-March quarter might be tweaked depending on the position at a later point in time. “Once the revenue and expenditure position is clearer, the government may consider tweaking the borrowing figure for the March quarter, if required,” she said.
The RBI has fixed the Ways and Mean Advances limit at ₹50,000 crore for the second half of FY24.