Modi govt announces Rs 70,000 crore cut in borrowing target to ease cash squeeze

NEW DELHI: The government has cut its gross borrowing for the year by Rs 70,000 crore and stuck to the net borrowings planned in the budget, sending a strong signal about its intent to meet the fiscal deficit target for the year. The reduction in gross borrowings, which will be met partly from small savings and lower smaller buy-back programme, should reduce pressure on the bond market and cool bond yields.

“We are in a sound condition. We do not anticipate any slippage in fiscal situation. Revenues will be as per budget estimates. We are on track on expenditure. There is no need to revise fiscal deficit target, which stays at 3.3% of GDP,” said economic affairs secretary Subhash C Garg.

“We decided to reduce total market borrowing requirement by Rs 70,000 crore,” Garg told reporters after a meeting with the Reserve Bank of India officials to finalise the borrowing calendar for second half.

Market was expecting a reduction in gross borrowing following upward revision in small savings rate that is expected to increase flows that government can use for meeting its fiscal deficit.

The government would be borrowing Rs 2.47 lakh crore as compared with Rs 2.88 lakh crore during April-September of 2018-19.

The 10-year bond yield is expected to range between 8.0-8.1% in the near term, said Aditi Nayar, principal economist, ICRA.

“With the uncertainty regarding the size of the H2 market borrowings out of the way, the outlook for inflation risks such as crude oil prices and the INR, the pipeline of open market operations, as well as the emerging information on the balance of various fiscal risks, would guide the bond yields going forward,” she added.

The government will also introduce inflation-indexed bonds linked to retail inflation during the second half of this financial year, Garg said.

Expenditure on minimum support price or Ayushman Bharat will not impact the overall budgeted expenditure, Garg said.

Consequently, he said, the government will borrow Rs 11,000 crore per week until beginning of November and after that it would raise Rs 12,000 crore like in the first half. He added that the government does not usually borrow in March.

“This year’s borrowing programme will end on March 8 with total 21auctions,” he said.

On treasury bills, he said, the committee decided to retain it at Rs 17,000 crore.