Economic Survey 2021-22: Govt's debt serviceability profile is stable

The government’s public debt portfolio is stable and interest rate risk low owing to lower dependence on external borrowing and most debt issuances bearing a fixed-rate coupon, the Economic Survey said.

“… most of the external borrowing are from official sources which are of long term and concessional in nature. The roll over risk is also low owing to low issuance of short-term bonds with a view to elongate the maturity profile,” the Survey said.

The weighted average maturity of the outstanding stock of debt has increased to 11.31 years at the end of March 2021 from 9.7 years at the end March 2010. This is because the proportion of dated securities maturing in less than five years has seen a consistent decline in recent years.

The higher average maturity lowers the rollover risk, the Survey noted.

In keeping with this philosophy, the government, on the eve of the Budget, issued longer-dated securities to the Reserve Bank of India (RBI), instead of shorter-tenure bonds held by the central bank in its balance sheet. The government bought securities worth Rs 1.14 trillion from the RBI, and, in lieu of this, issued securities worth Rs 1.17 trillion.

The securities bought from the RBI, including special oil bills, mature between 2022 and 2025. The securities issued to the RBI mature between 2028 and 2035, thus pushing the redemption pressure by six to 11 years, depending upon the bond issued. The transaction was cash-neutral, the RBI noted in a statement.

The Survey noted the public debt of India was largely owned by institutional segments like banks, insurance companies, and provident funds. The share of commercial banks, the largest buyers of government securities, fell to 37.77 per cent at the end of March 2021 from a year earlier.

The share of the RBI went up to 16.2 per cent at the end of March 2021 from 15.1 per cent at the end of March 2020.

“Issuance of dated securities is planned and conducted, keeping in view the debt management objective of keeping the cost of debt low, while assuming prudent levels of risk and promoting market development. All these factors make the public debt portfolio stable and also sustainable,” the Survey said.

The Survey said the introduction of a retail direct scheme would diversify the investor base of the government, and will “enable stable demand for G-sec from different investor categories”.

The central government’s outstanding liabilities were at Rs 117.04 trillion at the end of March 2021. Public debt accounted for 89.9 per cent of the liabilities, while public account liabilities, which include the National Small Savings Fund, State Provident Funds, Reserve Funds and Deposits and other Accounts, constituted the remaining 10.1 per cent.

The liabilities of the government as a ratio of GDP were relatively stable in the past decade, but rose sharply in 2020-21 because of the pandemic, which also brought down gross domestic product.

“The debt-GDP is however expected to follow a downward trajectory in the upcoming years,” the Survey said.