RBI may further pare G-sec buybacks, cut borrowings in second half of FY19

Officials from the Finance Ministry and Reserve Bank of India will meet on Friday to decide the borrowing calendar for October-March

The government is likely to reduce its gross borrowing by around Rs 200 billion in the second half of the fiscal year, Business Standard has learnt. The reduction is likely to come in form of lesser buybacks, with no expected change in issuances of government 

Officials from the Finance Ministry and Reserve Bank of India will meet in New Delhi on Friday to decide the borrowing calendar for October-March. The meeting will include Economic Affairs Secretary Subhash Garg, a RBI deputy governor, and officials from the ministry’s budget division and the central bank.

“There are discussions on further reducing the scheduled buyback of bonds by around Rs 200 billion,” said an official. The person added that issuances of long-term G-secs will not be affected. 

The Centre’s budgeted estimate for gross borrowing for 2018-19 is Rs 6.06 trillion. For the first half of the year (April-September), the Centre had announced the intention to borrow Rs 2.88 trillion, against market expectation of Rs 3.3-3.6 trillion. 

This was done as the government had moved to ease the pressure on the market considerably by reducing first half borrowing programme to 47.5 per cent of the total budgeted borrowing, against the normal practise of 60-65 per cent. 

To make up for reduced borrowing, the Centre said it would draw an additional Rs 250 billion from the National Small Savings Fund to finance the fiscal deficit for 2018-19. As against an earlier estimate of Rs 750 billion, now Rs 1 trillion will be drawn from the NSSF to finance the fiscal deficit. 

The government has already announced the RBI’s intention to reduce its planned buybacks of G-secs, which usually take place in second half- of G-secs by Rs 250 billion. Hence the gross borrowing for the year has actually been so far reduced by Rs 500 billion to Rs 5.56 trillion. Any further reduction likely to be announced on Friday will be in addition to that. 

As announced earlier, net borrowing, which was budgeted at Rs 4.62 trillion, will see a reduction of Rs 250 billion on account of higher amount drawn from NSSF. Net borrowing for 2018-19 will be Rs 4.27 trillion.