The government and RBI are working on inclusion of Indian sovereign bonds in global bond indices and it may become a reality by the second half of the next fiscal, Economic Affairs Secretary Tarun Bajaj said on Wednesday.
The move would attract higher foreign flows as many overseas funds are mandated to track global indices. It will also help bring in large passive investments from overseas, as a result of which more domestic capital would be available for industry as crowding out would be reduced.
"We are trying for the first half itself but if not in first half, it can maximum stretch to second half," he told PTI in an interview when asked about the timeline for inclusion of government bonds in global indices.
Some specified securities which will be listed on the indices will not have a lock-in requirement.
Globally, there are some large institutional investors that track these indices, such as Bloomberg Barclays Emerging Market Bond index, for positional decisions on sovereign papers.
To facilitate this, the RBI last year opened certain specified categories of government securities (G-Secs) for non-resident investors as part of an initiative to deepen the bond market.
RBI, in a notification, had said that a separate route namely Fully Accessible Route (FAR) for investment by non-residents in securities issued by the Government of India has been notified.
Allaying apprehensions on impact of large borrowing on private investment, Bajaj said there is ample liquidity in the market. As a result, the cost of borrowing for the government also declined this year, he added.
There are other alternatives before the government, including the National Social Security Fund (NSSF).
"If private sector needs come up, we will be happy to create space for them," he said.
The government will borrow Rs 12.05 lakh crore from the market in 2021-22, lower than the Rs 12.80 lakh crore estimated for the current financial year.
According to the Revised Estimate, the gross borrowing for the current financial year was raised to Rs 12.8 lakh crore as against the Budget Estimate of Rs 7.8 lakh crore, registering an increase of 64 per cent.
"The gross borrowing from the market for the next year would be around Rs 12 lakh crores. We plan to continue with our path of fiscal consolidation, and intend to reach a fiscal deficit level below 4.5 per cent of GDP by 2025-2026 with a fairly steady decline over the period," Finance Minister Nirmala Sitharaman said had said while unveiling Budget 2021-22 in the Lok Sabha on Monday.
Gross borrowing includes repayments of past loans. Repayment for past loans in the next financial year has been pegged at Rs 2.80 lakh crore.
The government raises money from the market to fund its fiscal deficit through dated securities and treasury bills.
As a result, net borrowing would come down to Rs 9.24 lakh crore for the next fiscal, while for the current fiscal it is estimated at Rs 10.52 lakh crore.
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