Union Budget for FY24 will see the beginning of the requirement for a higher amount towards repayment of government securities till FY32. Still, the expectation is that the gross borrowing might not see a very high increase and could be around ₹16 lakh crore as against an estimated ₹14.21 lakh crore during FY23. One reason for not very high borrowing is expected good tax collection
Government data shows, G-Sec alone worth over ₹4.48 lakh crore maturing in FY24, which will come down a bit to ₹4.10 lakh crore in FY25 but will rise to over ₹5.50 lakh crore and ₹6.76 lakh crore in FY26 and FY27, respectively. These numbers may see variation mainly on account of a switch. Switch/ conversion of Government Securities (G-Secs) entails the conversion of G-Secs maturing in the near term to longer-dated securities. For FY23, the budget document mentioned the total repayment scheduled (G-Sec and all other special bonds) at ₹3.99 lakh crore. Along with this, an amount of ₹1 lakh cr was mentioned for switch.
This is done to ease redemption pressure on the Government. Under the Government’s switch programme, it buys back G-Sec with shorter residual maturities, for instance, those bonds that have a maximum of a year or two before maturity. And against such buybacks, instead of paying money to the sellers, it gives bonds of longer residual maturity, usually of at least 5 years. For FY23, budget estimate for switch is ₹1 lakh crore, out of which over ₹56,000 crore of switch auctions have already been conducted and the balance amount of being conducted during the October-March quarter.
Also read: Banks’ investment in G-Secs, SDLs surges over ₹1-lakh cr in first fortnight of CY23
Apart from dated securities, another major repayment due in FY24 is towards oil bonds. Government data show bonds worth ₹15.5 thousand crores maturing in FY24. This figure too can undergo change because of buyback and switch. For example, on January 31, 2022, six oil bonds (aggregating ₹28,723 crore), maturing between 2023 and 2025, were converted into G-Secs maturing in 2030. Oil bonds had been issued by the previous UPA regime as compensation to oil marketing companies in lieu of cash subsidies.
Along with these repayments, dues also include fertilizer bonds and the right issue of SBI. Then there is repayment due towards borrowing for providing back-to-back loans to State Governments/Union Territories during the year 2020-21 and 2021-22 to meet GST Compensation shortfall. However, for this repayment, money is to be mobilized through a compensation cess, being levied as part of total GST on products, such as fossil fuel-driven automobiles.
Meanwhile, even after more money is required for repayment, borrowing may not see a very high increase. Most research reports suggest that it could be around ₹16 lakh crore. In its research report, SBI said: “We believe net market borrowing of the Centre will be around ₹11.7 lakh crore and with repayments of ₹4.4 lakh crore, gross borrowing are expected at ₹16.12 lakh crore. We believe switch of ₹50,000 crore is also likely to be announced. With higher tax devolution from the Centre, the states are likely to borrow around ₹8 lakh crore in FY23, lower than earlier anticipated.”