We will ensure borrowing programme in FY23 is smooth: DEA secy Ajay Seth

In a Q&A, he asserts nothing, including a ban on crypto currency, is off the table since the concerns of the financial market are for real

Market borrowings in 2022-23 may come down if collections under the National Small Savings Fund (NSSF) are significantly higher than estimated, Economic Affairs Secretary AJAY SETH tells Asit Ranjan Mishra and Arup Roychoudhury. Seth says nothing, including a ban on cryptocurrency, is off the table since the concerns of the financial market are real. Edited excerpts:

High borrowing by the government is expected to push up bond yields and the Centre's debt-to-gross domestic product (GDP) ratio. What was the deciding factor for higher borrowing and lower drawdown from the NSSF?

When we talk about any borrowing number, it has to be seen relative to GDP. Borrowings get financed through various sources - small savings is one of them. It is not a question of less drawdown. State governments no longer borrow (from NSSF). Whatever is coming, we use it for the purpose of financing fiscal deficit of the central government and to that extent, market borrowings become a residual number.

Next year, our estimate is that the collections from small savings may moderate vis-à-vis collections this year. This year, perhaps the savers found (small savings) interest rates to be a more attractive option. In the coming year, the trend might change. In the event of small savings collection being much higher (and we track it every month), the market borrowing will come down as well.

The market expects bond yields to go up significantly. Where do you see bond yields next year?

I really don’t want to speculate on that. Various factors influence that aspect, not just domestic, but also what other major economies are up to. The entire borrowing programme will be run in a manner which is not disruptive for the market. We are in regular exchange with the Reserve Bank of India.

Since the overseas bond index listing doesn't seem to be happening anytime soon, observers think it will put upward pressure on bond yields.

When conversations started around the rupee paper being part of the global indices, tax exemption was never part of the conversation. That came much later. There is new demand and that has to be seen from the perspective of the overall taxation philosophy. It can't be to simply facilitate overseas listing.

As far as bond yields are concerned, one cannot see it from 2020 or 2021 perspective. These were pandemic years. You have to see what the yields were in a normal year. We have to take that as a benchmark.

Where are the discussions on crypto asset legislation?

An appropriate regulation requires a fair degree of understanding and simultaneous action with various jurisdictions. It can't be done by any one country. A ban also requires global understanding and consensus. It was expected that in the course of 2021, a Bill would reach Parliament for consideration. But as we have started expanding our consultation with the stakeholder, there is a realisation that that a global understanding is needed to provide appropriate policy response, rather than a short-term response. One should see it from that perspective. At this point in time, we are in active discussions with institutional stakeholders who have the mandate of macroeconomic management and financial stability. We do expect a fair share of dialogue happening this year in the Group of Twenty forum on this.

Are we to assume that any regulation on the Indian side will come only after consensus of opinion on an international forum?

A comprehensive solution has to be thought through. It is not as if we need to await a global consensus. But without a general sense of direction where other major economies are moving, doing one country-specific solution may be sub-optimal.

When are these discussions expected?

These are ongoing discussions. In February, there's a meeting of finance ministers and central bank governors happening where this issue could be discussed.

Is a ban on crypto assets still on the table?

A ban is an extreme form of regulation. The policy response is to take care of concerns from a macroeconomic stability standpoint and at the same time, make sure the blockchain technology (tech) or the distributed ledger tech is not hampered. A crypto asset has several use-cases. Nothing is off the table. What is very much on the table is that the concerns are real and how best to address them. At the same time, ensure that the distributed ledger tech can be used in a sustainable manner for various economic uses.

The Budget has announced a central bank digital currency. How will it be used?

A digital rupee opens up the possibility of tailoring products and services separately for wholesale use, as well as retail use. The second aspect of the digital rupee gives an advantage a programmable contract or a smart contract can be embedded into. If those conditions are met, only then does that transfer happen. Once the digital rupee is in the market, appropriate products and services by financial institutions and fintech companies using the digital rupee will be possible.

There was supposed to be an amendment to the Fiscal Responsibility and Budget Management Act and a medium-term fiscal consolidation framework to be released. That hasn't happened. 

There is still a risk or uncertainty around the pandemic. The global financial scenario is also a bit uncertain how it will play out although the economy is in far stronger position. What is important is to assure stakeholders, especially the market, that the government is on the track of fiscal consolidation. So that part has been done. That doesn't require an amendment per se. The existing Act itself provides for it. That government has to inform Parliament, place a deviation statement.

What is the thinking behind the proposed green bonds and their end use?

They help in low-carbon consumption. We have to determine which sectors and projects qualify to be in the green economy. We'll be developing that framework and come to the market with the appropriate tenure and amount of green bonds.