Extra-budgetary fund-raising through fully serviced bonds shot up in FY19

Issuances of Government of India-Fully Serviced Bonds (GoI-FSBs) shot up during FY19 and accounted for 0.34% of GDP. During FY17, North Block gave its nod to the Ministry of Power, Ministry of New and Renewable Energy, Ministry of Shipping, and Ministry of Water Resources, River Development and Ganga Rejuvenation (MoWR) to raise extra-budgetary resources through GoI-FSBs.

While the Centre’s net borrowings remained stable at Rs 4.1-4.3 lakh crore during this period and fiscal deficit as percentage of GDP went down to 3.4% (Estimates) from 3.5% between FY18 and FY2017, if GoI-FSBs were to be accounted for, the fiscal deficit would have been higher.

GoI-FSBs accounted for significant share of corporate bond issuances during FY19. In addition, a decline in bond yields and preference for long-term debt to reduce asset-liability mismatches supported the 75% rise in such issuances to Rs 4.42 lakh crore during H2FY2019 from to Rs 2.53 lakh crore during H2FY2018.

In contrast, rising bond yields and widening interest rate differential between long- and short-term rates resulted in a 12% year-on-year (YoY) fall in thew same during H1FY2019 to Rs 2.4 lakh crore from Rs 2.7 lakh crore during H1FY2018. Overall corporate bond issuances are estimated to have increased by 30% on a YoY basis during FY19 to Rs 6.8 lakh crore from Rs 5.2 lakh crore during FY18.