India reduces borrowing target for second half of FY23
There is good news on the macro front. The government at the centre has decided to cut its borrowing target for the second half of FY23 (H2-FY23) by Rs10,000 crore. Actually, it was estimated that the borrowings in the second half may go up because the government had just allocated Rs44,762 crore as additional expense towards free ration distribution. But it looks like the buoyant revenues of the government have been sufficient to not only bank roll the free food program but also to reduce the overall borrowing target for the second half of FY23 by Rs10,000 crore. That should be some relief for the bond yields.
The total borrowings of the central government in the second half would only be Rs5.92 trillion. That is Rs10,000 crore less than the original target and this amount also includes the Rs16,000 crore that the government plans to borrow through Sovereign Green Bonds. As a result, the total borrowing target for FY23 overall has been cut from Rs14.31 trillion to Rs14.21 trillion. Of course, in each of the bond auctions that the government undertakes, it will continue to exercise the Greenshoe option to retain an additional subscription of up to Rs2,000 crore against each of the securities in the auction notification.
To a large extent, this confidence for the government comes from the robust tax revenues in FY23 till date. The gross direct tax collections (before payment of refunds) till September 17 was already 30% higher on a yoy basis at Rs8.36 trillion. If you exclude the Sovereign Green Bonds from the Rs5.92 trillion, it amounts to Rs5.76 trillion, which will be borrowed via a total of 20 weekly auctions. The government raises funds through treasury bills and dated securities. What is gratifying for the government is that out of the total borrowings, more than 31% of the borrowings will have a long term maturity of 30 years and 40 years.
While the 30 year maturities and the 40 year maturities will dominate, the overall borrowings would also be spread across 2, 5, 7, 10 and 14, year securities. If we exclude the Sovereign Green Bonds, the share of the various maturities would be 2-year (6.25%), 5-year (12.15%), 7-year (10.42%), 10 year (20.83%), 14 year (19.10%), 30 year (15.63% p) and 40 year (15.63%). More than 50% of the borrowings are of above 14 year maturities while more than 70% of the total borrowings belong to maturities of 10 years and above. The borrowing profile can be classified as truly long dated.
The above excludes the borrowings via short term treasury bills which are for 91-day, 182-day and 364-day maturity. The total weekly borrowings via issuance of Treasury Bills (T-Bills) in the December 2022 quarter is expected to be Rs22,000 crore. This will include Rs10,000 crore by way of 91-day T-bills, Rs6,000 crore by way of 18-day T-bills and Rs6,000 crore by way of 364-day T-bills.
It must be noted that there are often temporary mismatches in government accounts. This gap is normally filled by the Ways and Mean Advances (WMA) limit for H2 of 2022-23 at Rs50,000 crore. WMA is in the form of a temporary advance given by RBI to the government of India to tide over mismatch between receipts and payments. As of now, the RBI has the flexibility and the leeway to revise the limit at any time, in consultation with the Indian government. The interest rate charged on the WMA is normally equal to the repo rate and in case of overdraft, it is 2% above the repo rate.
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