Informist, Thursday, Jul 25, 2024

--Fin min source: To rather cut T-bill than bond borrow if space arises
--Fin min source: Don't want large fluctuations in borrowing calendar

--Fin min source: Interest cost down on net negative T-bill borrow

--Fin min source: Interest cost down on May-Jun bond buyback

--Fin min source: Sought to infuse liquidity through cash mgmt FY25

By Aaryan Khanna

NEW DELHI – The revenue projections made in the Union Budget for 2024-25 (Apr-Mar) may seem conservative enough to spur chances of a borrowing cut later in the year, but the government has other plans. In the event of a lower-than-expected fiscal deficit, the government would rather cut back further on its short-term borrowing through Treasury bills than dated securities, a finance ministry official said.

"We had room to cut short-term borrowing even further (in the Budget), but decided not to because we would rather revise it down than up in the revised estimates (for 2024-25)," the official told Informist. "There are other considerations for dated bonds, such as ensuring supply for each segment of the market. We have already done a token cut, and we would not like to touch gross borrowing for only another 100-200 bln rupees."

In the full Budget, the gross borrowing aim was revised lower to 14.01 trln rupees from 14.13 trln rupees outlined in the Interim Budget. This is the first fall in gross borrowing, after three years of record-high supply culminated in 15.43 trln rupees of bonds issued in 2023-24. Meanwhile, the short-term borrowing target was slashed by 1 trln rupees from the Interim Budget for 2024-25 to (-)500 bln rupees.

"We are also cognisant of preventing large fluctuations in the borrowing calendar. Going from something in the 13-trln-rupee handle to the 15-trln-rupee handle again, if required next year, may not be accepted smoothly by the market," the official said.

The government has built up its cash balances over the years, and over the past year has been aiming to reduce the rollovers caused by large net short-term borrowing. Even in 2023-24, short-term borrowing was high only because of non-competitive bidders – counting only competitive bids in Jan-Mar, the government kept to its revised estimates, the official said. The provisional actuals for the financial year ended March showed the government raised 532.05 bln rupees through short-term borrowing, instead of 13.23 bln rupees in the revised estimate.

By paying back short-term debt on a net basis and conducting buybacks this year, the government has infused liquidity into the banking system, further bringing down its interest burden, the official said. In the full Budget for 2024-25, the government has lowered the estimate for interest payment to 11.63 trln rupees from 11.90 trln rupees projected in the Interim Budget.

Net T-bill issuances in the first half of the fiscal year are close to (-) 1.5 trln rupees, according to quarterly borrowing calendars issued by the government. Due to high cash balances, the government cut down its T-bill issuance in the second half of Apr-Jun by 600 bln rupees. The government plans to use 1.40 trln rupees from its cash balance to fund the fiscal deficit this year.

It also bought back 302.48 bln rupees worth of gilts in May-Jun, all maturing within the current financial year, essentially pre-paying the principal amounts and saving on interest. The Reserve Bank of India had also rapped the government on maintaining high cash balances in Oct-Mar last year, as it distorted financial system liquidity, the official said.

"Through the buybacks, our intention was to provide as much liquidity as possible to the market during that time," the official said. "We tried to ensure that the surplus from the RBI was also used as quickly as possible and helped both us and the market."

The RBI announced on May 22 it would transfer a record 2.11 trln rupees as surplus to the central government for 2023-24, over double the estimate from the Interim Budget. End

Edited by Deepshikha Bhardwaj

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