Government to stick to borrowing target

The borrowing for October-March to be completed by the first week of February.

Sticking to its borrowing target of Rs 4,51,000 crore for 2009-10, the government today said it would sell bonds worth Rs 1,23,000 crore in the second half of the financial year (October-March).

RBI Deputy Governor Shyamala Gopinath said the borrowing for October-March would be completed by the first week of February. “The government will auction Rs 9,000 crore to Rs 10,000 crore of bonds every week from October,” Gopinath told reporters after meeting finance ministry officials.

She said the borrowing would be done in a non-disruptive manner and the central bank would buy or sell existing securities under its open-market operations as and when required.

“It is not a big amount. The market can absorb this demand,” said a senior State Bank of India executive.

“The borrowing plans are on expected lines. It is a manageable programme given the amount of liquidity in the system. It should not put (upward) pressure on yields,” said B Prasanna, chief executive and managing director of ICICI Securities Primary Dealership.

“There is no intention to change the number at all,” Finance Secretary Ashok Chawla said before the meeting of finance ministry and Reserve Bank of India (RBI) officials. He was speaking on the sidelines of a Vijaya Bank event here.

In a statement, RBI said the Centre would borrow Rs 10,000 every week between October 1 and January 15. The only exception would be the first week of November, when it would raise Rs 9,000 crore through market borrowings. During the week ending January 22, the amount would decline to Rs 7,000 crore and to Rs 8,000 crore in the first week of February, it said.

“As in the past, the central government/ Reserve Bank will continue to have the flexibility to bring about modifications in the above calendar in terms of notified amount, issuance period, maturity, etc, keeping in view the requirements of the government, market conditions and other relevant factors after giving due notice,” it added.

As part of the borrowing plan, the government sold bonds worth Rs 2,95,000 crore in April-September 2009-10. The borrowing excludes conversion of Rs 33,000 crore of market intervention bonds into regular bonds. It has already used up to Rs 28,000 crore and plans to use another Rs 5,000 crore from the market stabilisation scheme in the second half of the year.

In addition, RBI was to conduct open market operations to the tune of Rs 80,000 crore to ensure there was adequate liquidity in the system despite high government borrowings. In a statement this evening, the central bank said during the first half, it bough government securities amounting to Rs 57,487 crore through the auction route. “The Reserve Bank will conduct open market operations during the second half of the current fiscal year as and when considered necessary,” it said.

The government had increased its borrowing target from Rs 3,10,000 crore in 2008-09 to Rs 4,51,000 crore this year to boast the economy in the wake of the global slowdown.

According to Budget estimates, 40 per cent of the government’s 2009-10 expenditure will be funded by borrowings. The borrowings will expand the country’s fiscal deficit from 6.2 per cent last year to 6.8 per cent this year. The government is planning to reduce its fiscal deficit by 1.5 per cent every year to 4 per cent in 2011-12.