Finance ministry, RBI to meet today to discuss revised fund-raising calendar
The Centre has almost doubled its weekly borrowings to Rs 15,000 crore as it tries to frontload the calendar to complete 57 per cent of the annual fund-raising by August.
When the borrowing calendar was finalised at the end of March, the government had planned to borrow Rs 12,000 crore a week during the first quarter and lower it to Rs 8,000 crore a week in the second quarter.
Using this route, it would have borrowed Rs 2,41,000 crore by September, which was two-thirds of the level of Rs 3,62,000 crore projected in the interim budget.
But with the government facing its highest fiscal deficit since 1991at 6.8 per cent of gross domestic product, Finance Minister Pranab Mukherjee has budgeted for Rs 4,51,093 crore as loans the government would need to fund itself during 2009-10, an increase of about 72 per cent over the market loans raised the previous year.
Ahead of tomorrow’s meeting with the Reserve Bank of India to revise the borrowing calendar, Finance Secretary Ashok Chawla said market borrowings are unlikely to be reduced. Since June, the government has been borrowing around Rs 15,000 crore a week, though it is scheduled to raise Rs 12,000 crore on July 17.
Efforts to frontload the government’s borrowing programme has also been prompted by concerns of not crowding out private sector borrowing, should an anticipated upturn in the economy occur in the second half.
Last week, Chawla had said at least half the borrowings would be supported through open market operations, which are RBI’s purchase of existing securities from the secondary markets to ensure adequate liquidity in the system is maintained.
According to the March borrowing calendar, RBI’s open market operations were to be of the order of Rs 80,000 crore during the first half of the year. Of this, till July 3, it had bought securities of around Rs 43,000 crore against Rs 40,000 crore targeted in the first quarter.
The third element of the borrowing programme was desequestering or unwinding market stabilisation scheme (MSS) bonds worth Rs 42,000 crore, of which Rs 37,500 crore was to take place during the first quarter. As part of MSS, bonds were issued to mop excess liquidity generated due to high inflows from portfolio investors up to the first half of 2008.
Under MSS operations, RBI had issued securities on behalf of the government and sucked out the excess liquidity. The government bears the interest costs on these bonds.
When unwinding takes place, the bonds are liquidated and the money is transferred to the Centre’s account. The funds that are released will meet a part of the government’s borrowing requirements and do away with the need to tap the markets to raise funds.
Chawla added that additional funds would be raised through a “mix of treasury bills and government securities”.
“We will support some of this borrowing with treasury bills and also through unwinding some securities which had been built up in rupee terms over foreign money that came in about a year and a half ago. We have a plan to borrow without stressing the bond market,” Chawla said, adding that the programme will be supported by the central bank through its open market operations at a “later stage”.
The benchmark 10-year bond yield on Wednesday afternoon was at 6.81 per cent, against an all-time low of 4.86 per cent in early part of January 2009. Bond yields, which have an inverse relationship of bond prices, have gone up on anticipation of an oversupply as a result of the government’s higher borrowing target.
Meanwhile, Chawla told Newswire18 that the government aimed to raise about Rs 15,000 crore through disinvestment. The Budget had set a target of roughly Rs 1,120 crore. At the CII meet, Chawla said the disinvestment road-map would be finalised in “two or three weeks”. This will outline how much the government is willing to dilute in selected public sector undertakings (PSUs), along with a probable time line.
Chawla also clarified that there would be “no strategic sale in PSUs”.
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