No plan to privately place gilts with RBI, says govt

The government today said it is not planning to privately place gilts with the Reserve Bank of India (RBI) as of now despite the fiscal deficit projected to touch 6.8 per cent of gross domestic product in the year ending March.

“At present, notwithstanding the 6.8 per cent fiscal deficit projected in Budget estimate 2009-10, the government does not propose to invoke the above provisions of the Fiscal Responsibility and Budget Management (FRBM) Act for facilitating RBI participation in the primary market for government securities,” the finance ministry said in a statement.

Under the FRBM Act, the government can privately place gilts with the RBI only in case of specified exceptional circumstances. The government also clarified that the RBI’s open market operations (OMO) were only a liquidity management tool and not monetisation of the deficit.

“These operations are conducted as warranted by the evolving monetary and financial market conditions.” The government said the amount under OMO and the decision to buy or sell gilts in the secondary market are determined by the prevailing liquidity conditions.

Earlier this week, Finance Secretary Ashok Chawla had said 50 per cent of the government’s borrowing this year will have to be supported by OMO.

The Budget has pegged the government’s gross market borrowing for the current fiscal at a record high of Rs 4.51 lakh crore, as against the interim Budget estimate of Rs 3.62 lakh crore. The RBI restarted OMOs since February and is scheduled to buy gilts worth Rs 80,000 crore this year under OMO.