Usually, the Centre finishes a major chunk of its total annual borrowing during the first half of the fiscal, allowing the state governments to borrow more during the second half. This normally helps in crowding out the governments’ borrowing plans. The front-loading by the central government is also aimed at increasing capital expenditure early in the year, which usually has a multiplier effect on the economy.
The government also said that very soon it would come out with plans for issuing green sovereign bonds. It was working with the RBI to finalise the rules and the modalities for the same. In her Budget speech this year, finance minister Nirmala Sitharaman had announced that the government will borrow through green bonds.
The government will continue to carry out switching of securities to smoothen the redemptions, a release from the finance ministry said. “The government may continue to exercise the greens hoe option to retain an additional subscription of up to Rs 2,000 crore against each of the securities indicated in the auction notification,” it said.
The first half’s borrowing is planned to be completed in 26 weekly tranches of Rs 32,000-33,000 crore, the release said. It will borrow through bonds with tenures of 2, 5, 7, 10, 14, 30 and 40 years. It’ll also issue floating rate bonds (FRBs) of various tenors. “Long-term securities, including the 14-, 30- and 40-year ones, will make up for a significant chunk of the borrowing.”ICRA chief economist Aditi Nayar said once the government starts borrowing, the yields on its bonds are expected to start hardening, in line with global trends, even though the repo rate may not be hiked till August. “We expect the 10-year G-sec yield to cross 7% over the next few weeks, and rise to as much as 7.4% over the course of H1FY23,” Nayar wrote in a note.