New Delhi: India plans gross market borrowing of about Rs.6 trillion in the year through March 2014, a record high, according to three finance ministry officials with direct knowledge of preliminary estimates.
The increase from 2012-2013’s level will provide funds for government spending and debt repurchases as existing sovereign bonds near maturity, the officials said, asking not to be identified as the details aren’t public. Another official said borrowings will climb next fiscal year, without giving a figure. Exact numbers have yet to be finalized, all four said.
India’s government faces the task of containing the widest fiscal deficit in major emerging nations to avert a credit- rating downgrade to junk status. Finance minister P. Chidambaram, due to unveil the
Budget on 28 February, has vowed to pare the gap even as economic growth falters and an election due by May 2014 adds pressure for spending to win the support of voters.
Chidambaram’s goal is a shortfall of 4.8% of gross domestic product (GDP) in 2013-2014, from 5.3% this year. Government expenditure has contributed to price pressures that have limited room for interest-rate cuts in an economy expanding at the weakest pace in a decade.
Still, GDP growth will be sufficient for Chidambaram to meet his budget-gap goals as a percentage of the economy even as borrowings climb, the officials said.
Gross borrowings are the total amount of debt the government needs to raise including funds to repay maturing debt.
Borrowing programme
The government this week reduced its borrowing programme for the current financial year, after Chidambaram limited expenditure and raised as much as Rs.22,000 crore by selling stakes in state companies.
The administration cancelled a Rs.12,000 crore bond sale due this month, which would have been the last for the current fiscal year. The 2012-2013 gross borrowing target before the cancellation was Rs.5.69 trillion.
The government may consider buying back as much as Rs.40,000 crore of bonds next financial year to help manage record redemptions in the following 12 months, two finance ministry officials said last week. Notes worth Rs.1.68 trillion are due to mature in the year ending March 2015, budget documents show.
Benchmark 10-year bond yields have dropped 27 basis points this year. The 8.15% note due in June 2022 was at 7.78% at 9.55am in Mumbai, according to data compiled by Bloomberg. One basis point is 0.01 percentage point. Indian government notes returned 11.5% in the past 12 months, the best performance in Asia, according to indexes compiled by HSBC Holdings Plc.
Local fixed-income and foreign-exchange markets were closed on Tuesday for a public holiday.
Reserve Bank of India governor D. Subbarao has indicated that the fiscal shortfall, a record current-account deficit and elevated inflation will limit the magnitude of interest-rate cuts.
Subbarao lowered the repurchase rate to 7.75% from 8% last month, the first reduction since April last year.
Wholesale-price inflation eased to a 38-month low of 6.62% in January, while consumer-price growth accelerated to 10.79%, one of the highest levels in major economies.
The statistics agency predicts GDP growth of 5% in the year through March 2013, the least since 2002-2003.
Standard and Poor’s and Fitch Ratings lowered the outlook on India’s credit rating to negative from stable last year, citing risks such as the budget and trade deficits. That brought the nation a step closer to losing its investment-grade status.
Source : livemint.com