Centre plans to borrow 59% of FY23 debt target in April-September

Estimated at Rs 8.45 trn; full-year borrowing likely at Rs 14.31 trn

The central government plans to borrow Rs 8.45 trillion from the bond markets in the first half (April-September) of FY2022-23 to fund the revenue gap for reviving the economy, the finance ministry said on Thursday. This will be around 59 per cent of the lowered full-year gross borrowing target of Rs 14.31 trillion.

“The borrowing is scheduled to be completed in 26 weekly tranches of Rs 32,000-33,000 crore. The borrowing will be spread under 2, 5, 7, 10, 14, 30 and 40-year securities (G-secs) and floating-rate bonds of various tenors,” the ministry said.

At 59 per cent of the full-year target, the borrowing in the first half of FY23 will be slightly less front-loaded than in previous years. The norm has been to borrow 60-63 per cent in the past few years.

The Centre had borrowed 60.6 per cent of its FY22 debt target in the first half of the year. In FY21, the government had announced it would borrow 62.6 per cent in the first half before the borrowing plan was expanded due to the Covid-19 pandemic. In FY20, the share was 62.25 per cent.

The gross borrowing target for FY23 as announced by Finance Minister Nirmala Sitharaman in the Union Budget was Rs 14.95 trillion. It has been revised downwards due to Rs 63,500-crore switch operations carried out by the Reserve Bank of India last month. As a percentage of the original target, the borrowing in H1FY23 would have been 56 per cent.

Due to the pulling back of liquidity by the US Federal Reserve, high global commodity prices owing to the Russia-Ukraine war, and their possible impact on interest rates in India, the Centre and the Reserve Bank of India (RBI) were considering whether to pare down borrowings in H1FY23.

“The issuance calendar for H1FY23 is slightly more front-loaded than what we had anticipated. Nevertheless, the announced amount is slightly less front-loaded than in H1FY22, even though the amount is higher in absolute terms than in H1FY2022. If the Indian bonds are included in the global bond indices in H2FY23, a new source of demand would get generated. This would allow for a larger supply in H2 to get absorbed,” said Aditi Nayar, chief economist, ICRA Ltd.

“Once the borrowing calendar for FY23 kicks off, we expect the G-sec yields to start hardening in line with global trends, even though the repo rate may not be hiked till August 2022. We expect the 10-year G-sec yield to cross 7 per cent over the next few weeks, and rise to as much as 7.4 per cent over the course of H1,” she said. 

According to the finance ministry’s statement, the share of borrowing under different G-sec maturities will be 6.15 per cent in 2-year bonds, 13.85 per cent in 5-year, 10.8 per cent in 7-year, 20 per cent in benchmark 10-year, 16 per cent in 14-year, 13.25 per cent in 30-year, 13.85 per cent in 40-year tenor, and 6.15 per cent in floating rate bonds.

“The government may continue to exercise the greenshoe option to retain an additional subscription up to Rs 2,000 crore against each of the securities indicated in the auction notification,” it said.

To take care of temporary mismatches in the government account, the RBI has fixed the Ways and Mean Advances limit for H1FY23 at Rs 1.5 trillion, it added.

The finance ministry also added that it was working with the RBI on a framework for issuance of sovereign green bonds, as announced by Sitharaman in the Budget.

The Budget’s massive FY23 borrowing plan, owing to lower draw-downs from the National Small Savings Fund, sent bond yields soaring. The yields on the benchmark 10-year G-Sec rose to 6.9 per cent in the week Sitharaman presented the Budget. They closed at 6.84 per cent on Thursday. This jump in yields was also due to the policy tightening and gradual withdrawal of the Covid-19 stimulus by the US Fed.