India Sticks To Borrowing Plan For 2019-20 Despite Corporate Tax Cuts

India maintained its borrowing plan for the second half of 2019-20 amid concerns that the government will overshoot its fiscal deficit target because of a surprise cut in corporate tax rates.

The government will borrow Rs 2.68 lakh crore in the October-March period in 17 weekly auctions, Economic Affairs Secretary Atanu Chakraborty told reporters in New Delhi on Monday. Size of weekly borrowings will be Rs 16,000 crore, with the last two auctions of Rs 14,000 crore spread over 4-5 maturity buckets.

Here’s the share of issuances under different maturity buckets:

• 1-4 years: 6.72 percent of gross issuance
• 5-9 years: 17.91 percent of gross issuance
• 10-14 years: 40.67 percent of gross issuance
• 15-24 years: 9.33 percent of gross issuance
• Over 25 years: 25.37 percent of issuance

The government will issue floating-rate bonds to the extent of 10 percent of gross issuances during the year.

India had set a target to borrow Rs 4.42 lakh crore in the April-September period, nearly 62 percent of its total gross borrowing of Rs 7.10 lakh crore for 2019-20. No additional borrowing in the second half is aimed at calming the bond markets as the prices fell and yields rose on fears that the loss of Rs 1.45 lakh crore in revenue after the corporate tax cut could push fiscal deficit to 3.9 percent against the targeted 3.3 percent. The 10-year bond yield had surged 15 basis points to 6.79 percent on Sept. 19—the day tax cuts were announced. The benchmark yield was at 6.70 percent on Monday.

In the year-ago period, India had cut its scheduled borrowing plan by raising Rs 2.47 lakh crore from the markets. This was done by bringing down the planned buyback and by borrowing more from the small-savings account.

May Junk Plan to Borrow in External Currencies

At present, the government will borrow in rupee-denominated bonds this year, according to Chakraborty. The sovereign bond issuance needs to be done considering current price, market appetite, conditions and the structure of the bond, he said.

“We need very careful calibration and deliberation before it enters in the market. The work on that is presently going on—to work out structures and various pros and cons and it is a process which is long,” Chakraborty said.

In the Union Budget 2019-20, Finance Minister Nirmala Sitharaman had said the government would consider raising a part of its gross borrowing in external currencies. Subhash Chandra Garg, then finance secretary, had told Bloomberg that borrowing through overseas bond won’t exceed 10-15 percent of the total borrowing, which is about $10 billion.