Centre to borrow Rs 4.62 lakh cr in FY19 to meet spending

The Centre will borrow Rs 4.62 lakh crore from the market to meet its spending in the coming financial year.

The borrowing will be done in two tranches. In the first tranche, the government will take a short term loan of Rs 2.88 lakh crore, Economic Affairs Secretary Subhash Garg said detailing the Centre's borrowing plan for coming fiscal.

"After making careful assessment of its financial needs for the first half, the government's gross G-Sec (government securities) borrowing will be only Rs 2,88,000 crore in the first half of 2018-19,"Garg told reporters.

This makes up only 47.5% of the budgeted gross borrowing plan. Usually the government borrows 60%-65% in the first half of the year so as to give private sector the space to access the market in the second half.

However, the situation is different this year. The top buyers of G-Sec – mostly commercial banks – have been losing money on this portfolio as the yields on G-Secs have gone up due to the Centre's fiscal constraints and related large spendings ahead of election year. The recent banking frauds in Punjab National Banks and a couple of others too have lent to hardening of bond yields.

Besides, the current borrowing announcement has come just two months after an unprecedented market borrowing of Rs 50,000 crore announced by the Centre, prompting a loss of appetite among the G-Sec buyers.

Last week, finance ministry officials had met primary dealers seeking suggestions to conduct a smooth borrowing programme that does not lead to further hike in interest rates on G-Secs. Primary dealers had suggested issuance of short tenure G-Secs that would help the government and investors both.

Besides, the government will dive into the National Small Savings Fund (NSSF) more vigorously this year to fund its fiscal deficit in FY19. This year it will withdraw Rs 1 lakh crore from NSSF, the secretary said. Last year, the government had withdrawn Rs 75,000 crore from NSSF. This could reduce the overall market borrowing programme of the government for the entire fiscal, Garg said.

Garg said the government will also come out with inflation-indexed bonds linked to CPI or retail inflation. This could reduce the overall market borrowing programme of the government for the entire fiscal, Garg said.

This year, the government has to fund two major programmes announced in the Union Budget – a 50% hike in MSP and a national health protection plan that seeks to bring 50 crore people under its cover and provide a Rs 5 lakh cover per family, per year.

Though Garg said he was confident to meet all expenditures without going into over draft, analysts expressed a different viewpoint.