Govt to borrow Rs 27k cr less in first half of FY15

The author has posted comments on this articleTNN | Aug 15, 2014, 06.07AM IST

MUMBAI: In another sign that country's fiscal situation is improving, government on Thursday said it would borrow Rs 21,000 crore less from market in next seven weeks through gilts and Treasury bills (T-bills). This week, government borrowed Rs 6,000 crore less through its gilt auction and, taken together in first half of current fiscal, total cut in borrowing is pegged at Rs 27,000 crore. This was possible because government has substantial cash to meet its expenditure needs for next few weeks.

The government's plan to take less money out of system through its auctions of gilts and T-bills will help soften benchmark yield, which in turn may lower rate of interest in economy. On other hand, according to economists and dealers, less market borrowing will also ease current liquidity situation in system.

"With government's cash balances at significantly comfortable levels and prospects of attaining 4.1% fiscal deficit target looking bright, yields are expected to soften," said Soumya Kanti Ghosh, chief economic advisor, SBI.

On Thursday, RBI said that it, in consultation with government, has decided to cut government's total borrowing in next seven weeks to September 30 by Rs 21,000 crore to Rs 1.35 lakh crore, from Rs 1.56 lakh crore that was planned earlier. Recently, government said it has a cash balance of Rs 91,000 crore. On Sunday, RBI said it had paid government a dividend of nearly Rs 52,700 crore, compared to Rs 33,000 crore last year, which further improved cash situation of exchequer.

Finance ministry officials, however, said that this Rs 27,000-crore borrowing may be shifted to second half of current fiscal.

With 70% higher dividend inflow from RBI, economists and bond market players now expect government's total dividend income for fiscal could be Rs 1 lakh crore, compared to a budgeted amount of Rs 90,000 crore. In addition, with stock market improving, government also expects about Rs 80,000 crore from divestments ? Rs 18,000 crore higher than budgeted amount. With diesel subsidy expected to be lower by about Rs 20,000 crore, government is estimated to have about Rs 50,000 crore more at its disposal now.

"All these are sure to support exchequer in case there is any revenue slippage," said a dealer with a domestic bond house. "We are expecting (benchmark) 10-year yield to soften further to about 8.40% level soon, and remain between 8.35% and 8.65% for next few weeks." dealer said.

On Thursday, gilt market witnessed a rally on a report that government was revising its borrowing calendar, with 10-year yield softening by about 10 basis points (100 basis points = 1 percentage point) to close at 8.52%.

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