Open to FPIs: H1 gross borrowing at Rs 4.88L crore; no spike in yields seen

The Centre on Tuesday said it will borrow 62.6% of its budgeted full-year gross borrowing target through bonds in the first half of FY21. Around 63% of the bonds on offer will be fully available to be tapped by foreign investors. The government expects this would only have downward pressure on interest rates.

Analysts say the plan is unlikely to upset the bond market and cause a spike in yield. However, given the pandemic and consequent disruption in the economies across the globe, there may not be adequate appetite for such a large number of government bonds at this juncture. The benchmark 10-year bond yield was down 7 bps on Tuesday at 6.14%.

The gross borrowing in the April-September period will be to the tune of Rs 4.88 lakh crore, against the full-year target of Rs 7.8 lakh crore, including the repayment of loans. Net market borrowing for FY21 is pegged at Rs 5.36 lakh crore.

Addressing media, economic affairs secretary Atanu Chakraborty said: “The government is committed to its requirements for fighting Covid-19 whether on account of health issues or protecting the economy, and providing necessary stimulus at any time.” The entire borrowing plan has been “designed in that fashion”, he added.

The government will issue weekly securities of Rs 19,000-21,000 crore, against Rs 17,000 crore in the last year. These will have a maturity of 2, 5, 10, 14, 30 and 40 years. The government will also issue floating-rate bonds of a tenor of 13 years, the secretary said.

Weekly borrowings will be undertaken through treasury bills of Rs 25,000 crore in the first quarter, which will involve net borrowing of Rs 1.37 lakh crore in the first quarter of FY21.

The borrowing road map has been drawn after factoring in the expected demand because of the Fully Accessible Route being opened up for non-residents investors for special securities, the secretary said. He stressed that this will have only downward pressure on interest rates.

The government needs to pump-prime the economy, given the disruptions caused by the pandemic. So some analysts expect the government’s borrowing requirement to breach the full-year target.

“With less demand from industry and funds being easy with RBI’s policy also providing for the same, we do not see pressure on yields during the first 3 months of the year. Ten year ended 6.14% today and it will be interesting to see how the market reacts. Our guess is that they will move up given the frontloading of the borrowing,” CARE Ratings said in a report.

RBI will also be conduct switching and buyback of securities through auction on third Monday of every month, Chakraborty said, adding these will total Rs 2.7 lakh crore for the whole of FY21.

Way and means advances (WMA) are estimated to be Rs 1.2 lakh crore in H1FY21, up 60% from Rs 75,000 crore in H1FY20, indicating pressure on tax revenues in the first of FY21 due to economic slowdown after Covid-19 pandemic.