CIO comments on revision in government borrowing during January – March 2018

  • 28th Dec, 2017

The finance ministry announced some revision to the borrowing programme. It said that the government will raise additional market borrowings of Rs. 50,000 crore in FY18 (January to March 2018) through dated government securities (G-Secs) and Rs. 23,000 crore through treasury bills (T-Bills), prompted by lower revenue collections (especially lower dividend from the RBI) as against the budgeted estimate (BE). Also, data released by the government shows that GST monthly collections have been gradually reducing, from its implementation in July 2017–due to reduction in GST rates, and with people under the composite scheme switching from monthly filing of return to quarterly.

The market has reacted negatively to this borrowing announcement, with expectations that this could indicate fiscal slippage. Bond yields have hardened post the announcement, with the 10 year benchmark bond yield comfortably breaching the 7.30% mark today (in first half), after closing at 7.22% on December 27, 2017. Bond yields have also been hardening over the past few months, due to up-tick in inflation, rise in crude oil prices, and gradual exit of easy monetary policy by major central banks. With the recent hardening of bond yields, we feel that most of the negatives has been priced in by the market, including fiscal slippage. Therefore, we expect bond yields to be range bound over the near term.

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