Centre sticks to target, to borrow Rs 6.55 lakh crore in H2

The Centre will borrow ₹6.55 lakh crore from the market through dated securities in the second half of this financial year, staying with the budget estimate and indicating a comfortable fiscal situation for now.

In the first half of 2023-24, the government announced ₹8.88 lakh crore market borrowing out of the full-year target of ₹15.43 lakh crore. The second half market borrowing will include a new 50-year security for the first time, the finance ministry said in a statement. It said ₹20,000 crore will be raised through sovereign green bonds in the second half, as against ₹16,000 crore a year ago. "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.

'50-year bond to test investor appetite for long-term papers'

Ahead of the decision, the yield on ten-year benchmark eased to 7.14% on Tuesday from 7.15% the preceding day.

JPMorgan Chase & Co last week added Indian government bonds to its flagship emerging market gauge, which is expected to bring in about $30 billion in fresh flows.

At the end of July, the Centre's fiscal deficit had hit 33.9% of the full-year estimate, compared to 20.5% a year ago, raising some concern over whether the government would be able to meet the fiscal deficit target of 5.9% of GDP.

India Ratings chief economist DK 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."

Pant said the introduction of the 50-year bond would test the investor appetite for such long-term papers and that the move was driven by the market development point of view.

The borrowing in the second half of the fiscal is scheduled to be over in 20 weekly tranches of Rs 30,000-39,000 crore. The share of borrowing for 10-year maturity will be the highest, at 22,90%, according to the ministry, followed by 40-year maturity (18.32%), 14-year (15.27%), 30-year (12.21%), five-year (11.45%), seven-year (9.16%), three-year (6.11%) and 50-year maturity (4.58%).

"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 statement said.

It will also exercise a green-shoe option to retain an additional subscription of up to ₹2,000 crore against each of the securities indicated in the auction notification.

ICRA chief economist Aditi Nayar said, "Once the revenue and expenditure position is clearer, the government may consider tweaking the borrowing figure for the March quarter, if required."

The RBI has fixed the Ways and Mean Advances limit at ₹50,000 crore for the second half of the fiscal.