The Centre's borrowing costs fell sharply in the first quarter (Q1) of 2002-03. The average interest rate of new issuances stood at 7.40 per cent, 1.8 percentage points (180 basis points) lower than the rate at which it raised money in fiscal 2002.
If the government is able to maintain this difference over the rest of the current fiscal, it is likely to save around Rs 2,500 crore on annual interest.
The cost of borrowing was even higher, more than 10 per cent, in the first quarter of fiscal 2002.
The average maturity of fresh borrowings till June was pegged at 10.56 years, down from the weighted average maturity of the last financial year's borrowing at 13.06 years.
Borrowing costs have been going down over the years. In the last seven years, the weighted average yield of new issues fell from 13.75 per cent in 1995-96 to 9.21 per cent in 2001-02. The weighted average maturity also increased during the years from 5.6 years in 1995-96 to 13.06 years in 2001-02.
The dip in borrowing costs is in line with the declining interest rates. As of now, about 75 per cent of government papers still carries interest rate of over 11 per cent. However, as the Centre is set to launch its first paper with put and call option on Wednesday, its interest rate burden is slated to drip more in the future.
During the current fiscal, the interest rate of new issues are unlikely to go down further in a big way as analysts feel that gilt yields have bottomed out despite excess liquidity.
Moreover, the appetite for long-term paper is very low in the market even as the Reserve Bank of India's (RBI) indicative calendar signals that most of the borrowings will be through long-tenor gilts.
