Centre sticks to market borrowing plan for H2FY24; introduces 50-year bond

To borrow Rs 6.55 trillion in second half

The central government has decided to stick to its market borrowing plan of Rs 6.55 trillion in the second half (October-March) of financial year 2023-24 (H2FY24), brushing aside pressure from tepid revenue growth and rising subsidy burden in the pre-election year. This will include the issuance of sovereign green bonds worth Rs 20,000 crore, as against the Rs 16,000 crore maiden green bonds issued in FY23.

Out of the gross market borrowing of Rs 15.43 trillion projected for FY24, the Centre borrowed Rs 8.88 trillion (57.55 per cent) in the first half (April-September). The remaining Rs 6.55 trillion, earmarked for the second half, amounts to 42.45 per cent of the total borrowing and will be completed through 20 weekly auctions.

 

“Responding to market demand for longer-duration securities, 50-year security will be issued for the first time,” the finance ministry said in a statement on Tuesday.

Aditi Nayar, chief economist at ICRA Ratings, said the second-half issuance calendar was in line with her expectations. “Once the revenue and expenditure position is clearer, the government may consider tweaking the borrowing figure for Q4, if required,” she added.

Against the Budget estimate of 10.4 per cent growth, gross tax revenue grew at a paltry 2.8 per cent during the April-July period. The 8 per cent growth in nominal gross domestic product (GDP) in the June quarter of FY24, as against the Budget target of 10.5 per cent, was also expected to put downward pressure on revenue collections in FY24.

The Centre’s fiscal deficit for the first four months of FY24 through July stood at 33.9 per cent of the full-year target, a three-year high. This expansion is mainly due to higher capital expenditure.

The government aims to reduce the fiscal deficit to 5.9 per cent of GDP in FY24 from 6.4 per cent of GDP in FY23. India Ratings earlier this month said that although it expected wholesale price inflation to move into the inflationary zone in the second half of FY24 and push nominal GDP and, in turn, gross tax revenue collection higher, meeting the fiscal deficit target of 5.9 per cent of GDP in FY24 would be challenging.

The finance ministry said the government would continue to carry out switching of securities to smoothen the redemption profile. “Out of the Rs 1 trillion of budgeted (BE) switch amount, Rs 51,597 crore of switch auctions have already been conducted and the balance amount of switch auctions will be conducted in H2. To take care of temporary mismatches in government accounts, the Reserve Bank of India has fixed the Ways and Mean Advances (WMA) limit for H2 FY24 at Rs 50,000 crore,” it added.