The government will borrow Rs 2.68 lakh crore through gilts or bonds in the second half (October-March) period under gross borrowings programme, sticking to the budget numbers, and will hold 17 weekly G-Sec auctions in the same period, Economic Affairs Secretary Atanu Chakarborty said on Monday, while asserting all the borrowings in the fiscal will be in Indian currency.
This discards the much talked-about maiden sovereign foreign borrowings of India in 2019-20. The government is sticking to the borrowing target despite the expected revenue outgo of Rs 1.45 lakh crore owing to the corporate tax cut earlier this month.
Addressing media after the borrowing calendar meeting with RBI officials, Chakraborty said the government is sticking to the fiscal guide path of maintaining 3.3 per cent fiscal deficit target for 2019-20 for the time being. "This has been decided after careful deliberation on inflows and outflows," he added.
The size of weekly borrowings will be Rs 16,000 crore, with the last two auctions of Rs 14,000 crore spread over 4-5 maturity buckets. No additional borrowing in the second half is targetted at calming the bond markets as the prices fell and yields rose on fears that the loss of Rs 1.45 lakh crore in revenue after the corporate tax cut could push fiscal deficit to 3.9 percent against the targeted 3.3 percent and the prospects of weak tax collections.
The 10-year bond yield had surged 15 basis points to 6.79 per cent on September 19 - the day the tax cuts were announced. The benchmark yield was at 6.70 per cent on Monday.
In the year-ago period, India had cut its scheduled borrowing plan by raising Rs 2.47 lakh crore from the markets. This was done by bringing down the planned buyback and by borrowing more from the small-savings account.
On the sovereign borrowing plans, if any, as announced in the Budget, the Economic Affairs Secretary said that the need for issuing sovereign bonds is decided by taking many factors into account, including current price, and it needs careful deliberation.
"All borrowings this year are rupee denominated," he added. This effectively rules out any step to go for the dollar denominated borrowings at least the next six months.
Aditi Nayar, Vice President and Principal Economist of rating agency ICRA, said that based on the tax collections up to August 2019 as well as the government's estimate of the revenue loss related to the corporate tax cut, they expect a shortfall relative to the budgeted target for FY2020 for the government's tax revenues.
"The extent of the shortfall in the GoI's tax revenues relative to the budget estimate for FY2020 would become clearer by the end of the third quarter, both in terms of corporate tax revenues as well as the GST collections. Additionally, the funds collected through the NSSF and the size of the planned sovereign bond issuance would guide whether additional domestic dated securities need to be issued in Q4 FY2020", she said.
Chakraborty also said that the government has introduced two benchmarks -- 2 year and 5 year -- in FY19 and one benchmark in April 2019 which will be continued. The share of issuances under different maturities bucket will be 1-4 years -- 6.72 per cent, 5-9 years-- 17.91 per cent, 10-14 years -- 40-67% per cent, 15-24 years--9.33 per cent and over 25 years --25.37 per cent. The government will issue floating rate bonds to the extent of 10 per cent of gross issuances during the year.
Borrowings through T-Bils are being planned in such a way to result in net outflows of Rs 20,000 crore during Q3 of the fiscal. Switching of government securities will continue during H2 and buybacks of securities will also be undertaken in H2, he said.
During the first half of the fiscal, the government has raised Rs 4.42 lakh crore, about 62 per cent of the total borrowing. Out of the gross borrowing for Rs 7.10 lakh crore budgeted for 2019-20 fiscal, as much as 62.5 per cent has already been borrowed during April-September, Chakraborty said.
On Monday in the monthly review of accounts, up to the month of August, government also released data as given by the Controller General of Accounts.
The government exhausted 78.7 per cent of full year fiscal deficit target and 89.8 per cent of the revenue deficit target for 2019-20. But these figures at this stage do not carry much weightage or reflective of any fiscal position, since these numbers are set to substantially change by the year end.
In a big bonanza to corporate India, to break the slowdown cycle earlier this month, Finance Minister Nirmala Sitharaman announced that manufacturing companies that are not availing tax sops can opt for a 22 per cent corporate tax rate, while new manufacturing companies that register and start production between October 1 and March 2023 can avail of an even lower tax rate of 15 per cent. The effective tax rate, including cess and surcharges, for the existing companies comes down from 34.94 per cent to 25.17 per cent, while for new companies it falls from 29.12 per cent to 17.01 per cent.
Rating agency Fitch had said the decision to cut corporate tax rates may increase fiscal deficit by 40 basis points over the budget estimate of 3.3 per cent of GDP for 2019-20. It added that the fiscal impact will be felt much earlier than the growth impact of the decision.