Borrowing cut of ₹70,000 crore shows govt confidence on fisc

Sending a strong signal of its confidence in meeting the fiscal deficit target for 2018-19, the government announced on Friday that it will cut gross borrowings by ₹70,000 crore in the second half of the financial year.

Subhash Chandra Garg, secretary, department of economic affairs at the ministry of finance said after a meeting with the Reserve Bank of India officials, that the government is on track to earn revenues as per the budget estimates. He added that even with Ayushman Bharat and the higher minimum support prices, expenditure is on track and there is no need to revise the fiscal deficit target at 3.3% of GDP for 2018-19. “However, we had some rethink on the buyback programme as we expect some more funds to flow from small savings so we have decided to reduce the total borrowing requirement by ₹70,000 crore,” he said.

Government borrowing is used to bridge the fiscal deficit, which is the difference between revenues and expenditure. The union budget 2018-19 estimated gross borrowings of ₹6.05 lakh crore for the full fiscal of which ₹2.88 lakh crore has been borrowed during the first half of the fiscal. With the reduction, announced on Friday, ₹2.47 lakh crore will be borrowed in the second half of the fiscal taking the total to ₹5.35 lakh crore.

The government is confident that the balance will be managed through a reduction in buyback of government securities, additional flows from small savings and the re-introduction of the inflation indexed bonds, which will be linked to retail inflation (consumer price inflation).

On Thursday, the ministry of finance had increased interest rates on small saving schemes by 30-40 basis points for the quarter starting October 1. Garg said such schemes should help the government avail a higher amount from the National Small Savings Fund than what was estimated in the union budget 2018-19.

The inflation indexed bonds are expected to see at least one or two issues by March-end, Garg added.

“With the uncertainty regarding the size of H2 market borrowings out of the way, the outlook for inflation risks such as crude oil prices and the rupee, the pipeline of open market operations, as well as the emerging information o the balance of various fiscal risks would guide bond yields going forward,” said Aditi Nayar, principal economist at ICRA while commenting on the reduction in gross borrowing.

“The market would continue to monitor the likelihood of meeting budgeted targets for revenues related to the GST, dividends & profits, disinvestment and assess whether the outlays required for the revised MSPs, the National Health Protection Scheme, fuel and other subsidies, and bank recapitalisation would provide to be adequate,” she added.