Govt talks to RBI for bond maturity basket

The central government plans to increase its market borrowing through longer-dated securities to avoid big redemptions in the medium term and is in talks with the Reserve Bank of India to determine the appropriate maturity basket for new issuances, a report from the government said on Tuesday.

The government released its second status report on its analysis of debt, both domestic and external on Tuesday.

According to the report, going ahead, the government intends to make the most of its market borrowing through bonds with longer maturities to cut redemptions in the medium term.

The centre's reliance on market borrowing through dated securities for funding the fiscal deficit has increased over the years, the report said.

The government's total borrowing as a percentage of gross domestic product will be 29% by the end of the current fiscal year, it said.

"Though increased borrowings of the Central government during 2011-12 (Apr-Mar) have been conducted without disrupting the market, this level of increase in the volume of the dated securities is a matter of concern," the report said.

The rise in issuances of securities will raise interest cost, and future revenues will increasingly be utilised for meeting this cost, the report said.

The government aims to improve its debt-servicing capacity in the coming years, it said.

“The most critical factor impacting the central government's market borrowing is the level of fiscal deficit from year to year," it said.

The centre noted as the combined fiscal deficit of both the central and the state governments is on the rise, it would have to find other sources of financing this deficit. The report underlined the need for prudent fiscal management, given the euro zone debt crisis.