The government refrained from increasing its borrowing plan, saying it hasn’t yet decided on the borrowing schedule for the first half of the financial year ending March 2010, Finance Secretary Ashok Chawla said on Monday.
There is no change in the borrowing plan as of now, Chawla said in an interview in New Delhi on Monday, following meetings over the weekend between finance ministry and Reserve Bank of India (RBI) officials. Last week, Chawla said the government may borrow more than scheduled in the first half of the financial year.
India’s 10-year bonds rose as the comments dampened speculation the government will sell more debt and increase the supply at auctions. Finance Minister Pranab Mukherjee said last week the government will rely on market borrowings to fund higher spending to revive growth in the $1.2 trillion economy, forecast to grow at the slowest pace since 2003.
“The government didn’t announce any additional borrowings over the weekend and that came as a bit of a relief for the bond market,” said Baljinder Singh, a trader at state-owned Andhra Bank. “Also, liquidity continues to remain ample.” The yield on the 6.05 per cent note due February 2019 slipped two basis points to 6.67 per cent in Mumbai, according to central bank data.
India’s budget deficit in the financial year that ended March 31, 2009 widened to a seven-year high of Rs 3.3 lakh crore, or 6.2 per cent of gross domestic product, the government said on May 29. India plans to borrow a record Rs 3.62 lakh crore this financial year and estimates the budget shortfall at 5.5 per cent of GDP.
“The continued upward pressure on long-term rates suggests that market is concerned about the high bond supply,” said Sonal Varma, a Mumbai-based economist with Nomura Securities Co. “The government’s gross borrowing may widen to Rs 4 lakh crore as it seeks to raise spending.”
Varma expects India’s budget deficit to widen to 6.8 per cent of the GDP in the current financial year. The government borrowed more than it planned in May, increasing debt sales for the month to Rs 54,000 crore from the scheduled Rs 48,000 crore. It also plans to raise Rs 12,000 crore at an auction scheduled between May 29 and June 5.
Central Bank Governor Duvvuri Subbarao has expressed concern over the government’s widening deficit, saying on May 22 that a growing budget deficit may prevent interest rates from declining.
“The large borrowing is going against the Reserve Bank’s efforts in trying to maintain interest rates low,” he said.
RBI, on April 21, cut borrowing costs to a record low to support economic growth, forecast at 6 per cent in the financial year that started April 1. It lowered the reverse repurchase rate and the repurchase rate by a quarter-point each to 3.25 per cent and 4.75 per cent, respectively.
