Men walk along North Block of the Central Secretariat building, which houses the Ministries of Finance and Home Affairs, stands in New Delhi, India. (Photographer: Prashanth Vishwanathan/Bloomberg)

India Set To Borrow Rs 4.42 Lakh Crore In First Half Of FY20

The Indian government expects to raise Rs 4.42 lakh crore via market borrowings in the first six months of 2019-20, finance secretary Subhash Chandra Garg said on Friday. This implies that the government will be borrowing about Rs 17,000 crore each week.

The borrowing planned in the April-September 2019 period is nearly 54 percent higher than the Rs 2.88 lakh crore borrowed in the same period in financial year 2018-19. The government’s gross borrowing for the year is pegged at Rs 7.10 lakh crore, while net borrowings are seen at Rs 4.23 lakh crore.

The net borrowing for the first half of the year stands at Rs 3.40 lakh crore.

The government will complete 62 percent of its budgeted gross borrowings in the first six months of the next financial year. Typically, the government completes close to 60 percent of its borrowing requirement in the first half of the financial year, when liquidity conditions are easier. Last year, borrowings were pushed back as market conditions were adverse and yields were high. In 2018-19, government had completed 47.56 percent of its budgeted gross borrowing in the first six months.

While the decision to front-load borrowings is not unanticipated, bond yields could rise due to increase in supply of government bonds, said Soumyajit Niyogi, associate director at India Ratings and Research.

As expected, the government will complete about 60-62 percent of its borrowings in H1. Borrowings via longer tenor bonds are higher and state development loans are also substantial. Supply side pressure will push up long term bond yields.
Soumyajit Niyogi, Associate Director, India Ratings and Research.

The maturity of borrowings will be spread across the curve, said Garg. A new 7-year bond will be introduced as well. The borrowing plan across different tenures is as below:

  • 1-4 years — 8.8 percent
  • 5-9 years — 23.5 percent
  • 10-14 years — 32.4 percent
  • 15-24 years — 11.8 percent
  • More than 25 years — 23.5 percent
The borrowings are marginally higher than market expectations. The impact is expected to be marginal and yield may rise by a couple of basis points.
R. Sivakumar, Head, Fixed Income, Axis Mutual Fund

Redemption Pressure

Over the last two years, the government has tried to spread out the upcoming redemption pressure by switching existing bonds with longer tenor securities. This has seen limited success. According to the Medium Term Fiscal Policy Statement released as part of the interim budget, the government has budgeted repayments of Rs 2,36,878 crore in 2019-20. This redemption pressure is one reason why gross borrowings in FY20 are pegged at Rs 7.10 lakh crore, even though net borrowings are broadly stable.

The status paper on government debt released in January shows that the redemption pressure will continue to rise over the next few years, peaking at about 7.76 percent of the outstanding stock of government debt in 2022-23.

Because of these redemptions, the government will announce a calendar for ‘debt switches’, said Garg.

Watch Suyash Choudhary, head of fixed income at IDFC Asset Management’s, views on how higher government borrowing is a challenge to India’s economy here: