Govt to trim market borrowing

With chances of mopping up better revenues than estimated, the Government has cut down its market borrowing by ₹8,000 crore at ₹5.92 lakh crore. Borrowings are a means to bridge the gap between Government earnings and expenditure.

Less borrowings could also mean that the fiscal deficit may be lower than the Budget estimate. The Government aims to keep the fiscal deficit (the difference between earnings and expenditure) at 4.1 per cent in this financial year. Now, with lower borrowings, this could go well below 4 per cent, which is a good sign for sovereign ratings.

On Friday, global rating agency Standard & Poor’s (S&P) upped India’s rating outlook to ‘stable’ from ‘negative’ with a positive bias.

Lower borrowings will also mean that more money will be available for banks to lend to the private sector and individuals. This will also help in cutting interest rates.

The Government, in consultation with the Reserve Bank of India, has decided to borrow ₹2.40 lakh crore in the next six months starting October 1. Together with ₹3.52 lakh crore during the first six months (April-September), the total borrowings for this fiscal would be ₹5.92 lakh crore, against the Budget estimate of ₹6 lakh crore.

The borrowings will be made through long-term dated securities, which have a maturity period of more than one year and go up to 30 years. This instrument carries a fixed or floating interest rate, payable at fixed time periods (usually half-yearly), and are tradable in the market. Apart from banks and foreign institutions, retail individuals too can invest in such instruments. Announcing this decision, Finance Secretary Arvind Mayaram said the average weekly borrowing will be ₹14-15,000 crore during six months. He said the Government expected substantial cash surplus by the end of the year and would undertake “substantial” switch/buy-back operations of bonds.

Earlier, the Government had planned to borrow ₹3.68 lakh crore. A comfortable cash position has helped it borrow ₹16,000 crore less than planned. Accordingly, it is estimated that the second-half borrowing would be ₹2.48 lakh crore. However, there are positive indications on the revenue front, especially non-tax revenue, as also expectations of lower expenditure on subsidies.

The Government has already given its nod for disinvestment in Coal India, ONGC and NHPC. These three alone can bring in over ₹43,000 crore, which is close to the disinvestment target of ₹43,425 crore for Central Public Sector Undertakings.