Centre may not go for 60% borrowing in the first half of FY23

Rethink on proportion on back of Fed tightening, high oil prices

The finance ministry is in two minds on whether to go by the usual practice of borrowing around 60 per cent of its target in the first half of FY23, or make its debt calendar more backloaded, Business Standard has learnt.

Sources said with pulling back of liquidity by the US Federal Reserve (something other western central banks are expected to follow), and factoring in high global commodity prices and their possible impact on interest rates in India, the government and Reserve Bank of India (RBI) will have to carefully decide on their borrowing plans for April-September 2022.

“We will have to take a call because we also have to factor in how the Fed behaves and how it impacts our interest rates. We have to take a look at our resource projections, that takes a little time. We may feel that it may be more prudent to backload. The issue here is that the second half of the year is when states borrow more. So, we don’t want to disrupt the rates for them,” a senior official said.

The Centre’s net borrowing target for FY23 is Rs 11.58 trillion and gross borrowing target is Rs 14.95 trillion. The borrowing target for the coming year could get trimmed by Rs 63,500 crore as that is the amount that the RBI will switch with market participants.

The Centre borrowed 60.6 per cent of its FY22 debt target in April-September of the current fiscal year. In FY21, it announced it would borrow 62.6 per cent in the first half before the borrowing plan was expanded due to the pandemic. In FY20, that proportion was 62.25 per cent.

The official quoted above said that had it not been for global factors like Fed tapering and commodity prices, the Centre could have gone for the usual proportion between April-September and October-March of FY23.

“We will make a decision by the third or fourth week of March,” the official said.

Hypothetically speaking, 60 per cent of the Rs 11.58 trillion net borrowings target would be around Rs 8.97 trillion.

In FY22, the Centre borrowed Rs 7.24 trillion in the first half.

The states are expected to borrow more in the second half, and that is something the Centre and the RBI would have to keep in mind. This is because of a possible overcrowding in sovereign debt paper in October-March of FY23.

The Budget’s massive FY23 borrowing plan, owing to lower drawdowns from the National Small Savings Fund, sent bond yields soaring.

The yields on the benchmark 10-year G-Secs rose to 6.9 per cent the week Finance Minister Nirmala Sitharaman presented the Union Budget on February 1. They closed on Friday at 6.69 per cent.

This jump in yields was also due to the tightening and gradual withdrawing of the Covid stimulus by the Fed.