Govt may borrow Rs 2.48 L-cr in second half of FY15

The fiscal deficit for the current financial year has been pegged at 4.1% of the gross domestic product

The central government borrowing in the second of this financial year (October 1-March 31) is seen at Rs 2.48 lakh-crore, in line with the market’s expectations.

The government was scheduled to borrow Rs 2.32 lakh crore in the second half but that in the first half was trimmed by Rs 16,000 crore. The year's scheduled total was kept unchanged.

“The cancelled amount during the first half will be part of the auction calendar. Whether the government will borrow that amount during the year or not is a different issue,” said Suyash Choudhary, head, fixed income, IDFC Mutual Fund.

He said the impact on bond yields would not be much because the market is aligned to the view that this borrowing was to be done in the second half.

The first half borrowing was trimmed after the Reserve Bank of India (RBI) transferred a surplus amounting to Rs 52,679 crore for the year ended June to the government. It was the highest ever given, 60 per cent more than what was transferred the previous year. A welcome gift for the government, battling to keep its fiscal deficit under check. The deficit for the current financial year has been pegged at 4.1 per cent of gross domestic product (GDP).

The yield on the 10-year benchmark government bond ended at 8.46 per cent on Friday, compared with Thursday's close of 8.45 per cent. “If the borrowing quantum is cut, then only bond yields will fall. In the near term, bond yields might not fall below 8.40 per cent unless there is a big trigger,” said Balginder Singh, a government bond dealer at Andhra Bank.

The total borrowing requirement in 2014-15 had been budgeted at Rs 6 lakh crore or 4.7 per cent of GDP. The net market borrowing of Rs 4.61 lakh crore had been budgeted to finance 86.8 per cent of the fiscal deficit.

The Street does not expect inflation-indexed bonds to be a part of the government borrowing in the second half. These were launched in 2013-14 and were a part of the borrowing programme. “Bonds indexed to inflation in the Wholesale Price Index are out of fashion since RBI moved to Consumer Price Index (CPI) inflation as the benchmark. CPI inflation-linked bonds might be issued or not but we are not expecting it as a part of the borrowing calendar,” said R Sivakumar, head of fixed income and products, Axis MF.

These bonds had not got a good response and the Street believes these might be launched later after making changes in the product.