In a financial update, the Indian government unveiled its borrowing plan for the second half of the fiscal year 2023-24 amounting to ₹6.55 lakh crore. This borrowing will be accomplished through the issuance of dated securities, which play a vital role in meeting the government's fiscal deficit targets.
The Indian government relies heavily on market borrowings to bridge the fiscal deficit gap, and this announcement sheds light on its borrowing strategy for the latter part of the fiscal year. It is important to note that the government had previously projected gross market borrowing of ₹15.43 lakh crore for the entire fiscal year 2023-24.
As per the statement released by the finance ministry, the government has made the following decisions regarding its borrowing plan:-
Sovereign Green Bonds (SGrBs): The government will raise ₹6.55 lakh crore through dated securities, which includes ₹20,000 crore through the issuance of Sovereign Green Bonds. Sovereign Green Bonds are a notable financial instrument aimed at funding environmentally sustainable projects.
Longer Duration Securities: In response to market demand for longer duration securities, the government will issue a 50-year security for the first time. This decision reflects the government's commitment to diversifying its borrowing portfolio.
Auctions and Maturity Profiles: The gross market borrowing of ₹6.55 lakh crore will be spread across various maturities, ranging from 3 to 50 years. The government plans to conduct 20 weekly auctions to complete this borrowing program. The distribution of borrowing across different maturities is as follows – 3 years (6.11%), 5 years (11.45%), 7 years (9.16%), 10 years (22.90%), 14 years (15.27%), 30 years (12.21%), 40 years (18.32%), and 50 years (4.58%).
Switching of Securities: The government will continue to execute the switching of securities to manage its redemption profile effectively. Out of the budgeted ₹1,00,000 crore for switch operations, ₹51,597 crore has already been conducted, with the remaining amount set to be completed in the second half of the fiscal year.
Greenshoe Option: The government will exercise the greenshoe option to retain an additional subscription of up to ₹2,000 crore against each of the securities indicated in the auction notification. A greenshoe option is a provision grants the underwriter the right to sell more shares than originally planned. This allows for flexibility in responding to market demand.
Treasury Bills Issuance: In the third quarter (Q3) of FY 2023-24, the government plans to issue Treasury Bills amounting to ₹24,000 crore, with a net borrowing of ₹(-)52,000 crore during the quarter. These Treasury Bills will be issued in various tenures, including 91 days, 182 days, and 364 days.
Ways and Means Advances (WMA) Limit: To address temporary mismatches in government accounts, the Reserve Bank of India has set the Ways and Means Advances (WMA) limit for the second half (H2) of FY 2023-24 at ₹50,000 crore.
This borrowing plan provides insights into the government's financial strategy for the coming months and its efforts to manage fiscal requirements efficiently. Market participants and investors will closely monitor these developments to assess their impact on the financial markets and the broader economy.