
The Finance Ministry announced on Thursday that the government plans to borrow ₹7.5-lakh crore between April 1 and September 30. This borrowing is part of the interim Budget’s target of ₹14.13-lakh crore for gross borrowing during FY25. The purpose of this borrowing is to bridge the deficit between expenditure and income.
Borrowing Strategy and Rationale
The government aims to optimize its cash balance and reduce the cost of borrowing, which is why it plans to borrow slightly less than previous years. By borrowing 53% of the yearly target during the first half of the fiscal year, the government aims to avoid holding excess funds that it may not immediately need. This strategy is intended to manage cash flow more efficiently.
Impact of GDP Growth and Bond Index Inclusion
Economists have commented on the borrowing calendar and its potential impact. Devendra Kumar Pant, Chief Economist with India Ratings & Research (Ind-Ra), believes that if the GDP growth performance of FY24 and quarterly momentum continue, the nominal GDP for FY25 may exceed the Budget Estimate of 10.5%. This could lead to higher tax collection and a lower borrowing requirement for the next fiscal year.
Aditi Nayar, Chief Economist of ICRA, expects that the sharp 15.5% YoY fall in the government’s gross supply during the first half of FY25, along with the inclusion of bonds in the index starting in June 2024, will have a positive effect on Government Securities (G-sec) yields. ICRA predicts that the 10-year yield will trade between 6.8% and 7% during the first half of FY25.
Borrowing Details and Auctions
The borrowing during the first half of the fiscal year will include ₹12,000 crore through the issuance of Sovereign Green Bonds (SGBs). Additionally, a new 15-year tenor dated security will be introduced. The first half borrowing will be completed through 26 weekly auctions.
The market borrowing will be spread across various maturities, including 3, 5, 7, 10, 15, 30, 40, and 50-year securities. The percentages of borrowing under each maturity are as follows: 3-year (4.80%), 5-year (9.6%), 7-year (8.80%), 10-year (25.60%), 15-year (13.87%), 30-year (8.93%), 40-year (19.47%), and 50-year (8.93%). The government will also conduct switching of securities to manage the redemption profile.
Short-Term Borrowing with Treasury Bills
In addition to long-term borrowing through dated securities, the government also utilizes Treasury Bills for short-term borrowing. Treasury Bills have maturities of 91 days, 182 days, and 364 days. Unlike dated securities, Treasury Bills are issued at a discount and redeemed at face value, without carrying an interest rate.
Green-Shoe Option and Treasury Bill Borrowing
The government retains the right to exercise the green-shoe option, allowing it to retain an additional subscription of up to ₹2,000 crore against each of the securities indicated in the auction notifications. For the first quarter (Q1) of FY25, the government plans to borrow ₹27,000 crore through the issuance of Treasury Bills in the first seven auctions. Subsequent six auctions will amount to ₹22,000 crore, resulting in a net borrowing of ₹(-)3,000 crore during the quarter.