Has Modi govt put foreign sovereign bonds scheme on back burner for now?

During her Budget speech, Finance Minister Nirmala Sitharaman had said the government would start raising a part of its gross borrowing programme in external markets in foreign currencies

The government has accounted for only rupee-denominated bonds for borrowings this fiscal year, Economic Affairs Secretary Atanu Chakraborty said on Monday. This indicated the government will not go for overseas markets mop up this year.

“Sovereign bonds — bonds to be raised in external currencies — are decided on the basis of current price, market appetite, market conditions, and related issue and structuring of the bond itself. Careful calibrations and deliberations are needed before one enters in the market,” Chakraborty said. He said the government was working out a proper structure, weighing pros and cons, and the process is time consuming and “will continue for some time”. “For this year, all borrowing of the government, at present, is in rupee-denominated bonds,” the economic affairs secretary said.

During her Budget speech for FY20, Finance Minister Nirmala Sitharaman had said the government would start raising a part of its gross borrowing programme in external markets in foreign currencies.

The government will stick to its borrowing target of Rs 7.1 trillion for this fiscal year. It has successfully borrowed Rs 4.42 trillion, accounting for 62.2 per cent of the budgeted borrowings, in the first half of FY20, and the remaining will be raised in the second half.

In the second half of FY20, the government will borrow in 17 weekly auctions, with a weekly borrowing size of Rs 16,000 crore (Rs 14,000 crore in the last two auctions) spread over 4-5 maturity buckets. 

The government will also borrow through floating rate bonds, which would constitute 10 per cent of the total borrowing for the year or around Rs 70,000 crore.

The government will also borrow through short-term treasury bills. Borrowing through treasury bills is planned in a way as to result in net outflows of Rs 20,000 crore during the third quarter of FY20.

“The calendar is in line with the budgeted numbers. We expect the government to review its cash and fiscal balances in December and decide on need for extra borrowing. With the borrowing getting over in January, there will be ample time for government to borrow extra. At this point, it is unclear how the government will manage to meet its deficit targets in face of poor revenue growth and large tax giveaways,” A Prasanna, head of research at ICICI Securities Primary Dealership, said.

“With the calendar ending in January, the sword of extra borrowing will continue to hang over the market. In that sense, it’s mildly negative,” he said. 

The bond markets are expected to come down in the run up to the Reserve Bank of India’s monetary policy announcement on Friday as the market is broadly expecting a repo rate cut of at least 25 basis points.

Chakraborty stressed that the government will stick to its target of 3.3 per cent fiscal deficit of the gross domestic product (GDP) in FY20. He said the borrowing numbers have been arrived at keeping the fiscal deficit target in mind and after “careful deliberations and calibrations on the flows – both inflows and 

outflows”.

Analysts are, however, expecting a shortfall in the government’s tax revenue target for FY20, based on tax collections up to August and the government’s decision to forego Rs 1.45 trillion as a result of the corporation tax cut.

“The extent of the shortfall in the tax revenues relative to the Budget estimate for FY20 would become clearer by the end of the third quarter, both in terms of corporate tax revenues as well as the GST collections,” Aditi Nayar, principal economist at ICRA, said.