Govt pares its borrowing plan

The government will pare its borrowing in the second half of the financial year, thanks to higher-than-expected revenues from the auction of telecom licences and buoyant tax receipts. It now plans to borrow Rs 1,63,000 crore in the six months beginning October 1, Reserve Bank of India (RBI) said on its website. This is Rs 10,000 crore less than scheduled.

The 7.8 per cent government bonds maturing in 2020 gained 29 paise today, pushing down the yield by 4 basis points to 7.90 per cent over Wednesday.

Government borrowing is lower because of projected higher cash flows and current requirements, Finance Secretary Ashok Chawla was cited by Press Trust of India as saying in New Delhi. Second-half borrowing is likely to be completed by the second week of February, 2011, at an average of Rs 10,000-11,000 crore a week, RBI Deputy Governor Shyamala Gopinath said.

In its annual Budget, the government had planned gross borrowings of Rs 4,57,143 crore, or 4.98 per cent of GDP, in FY11, which is slightly higher than the Rs 4,51,000 crore, or 6.46 per cent of GDP, in the previous year. It has completed borrowing Rs 2,84,000 crore this year so far.

The government raised almost Rs 1,00,000 crore through the auction of 3G telecom and broadband licences, which was far higher than projected. Revenues are also picking up as the economy rebounds after the 2008-09 global economic slowdown. GDP grew 8.8 per cent in the first quarter, reflecting a pick-up in economic activity.

“The government’s borrowing programme is on expected lines. Yields may have a downward bias, but the market will watch the FII inflows, inflation and any future RBI action,’’ said a treasurer with a foreign bank in Mumbai.

Advance tax receipts in the June 15 and September 15 instalments were also up by 16.4 per cent. Up to the second tranche, collections stood at Rs 38,107.25 crore, against Rs 32,737 crore in the first six months of FY10, according to data compiled by the income-tax department.

“Government borrowing for Oct-Mar is lower on account of robust tax revenues,’’ Chawla was cited as saying. “Tax revenues are rising and non-tax revenues are also good." Variable-rate securities may be issued depending upon market conditions, RBI said.

The government today also increased the limit for overseas investors to buy government bonds and corporate debt by $5 billion each to $10 billion and $20 billion, respectively. The measure is likely to ease the pressure on local sources to fund India’s growing needs for projects in the infrastructure sector, among others.

“The government has raised the ceiling on foreign institutional investments in bonds. FIIs have been active in government bonds,’’ said Ashish Ghiya, managing director, Derivium Capital & Securities. “Their increased participation will lower yields, making it cheaper for the government to raise funds.’’