India May Cut Borrowing In Second Half Of FY19, Says Economic Affairs Secretary

A man counts Indian currency (Source: Bloomberg)

The government may reduce its borrowing in the October-March period by cutting down on its bond buyback programme.

The buyback of bonds is optional, and the government may choose not to do it, Economic Affairs Secretary Subhash Chandra Garg told reporters at a press briefing today. “We have scope of reducing our buyback programme further which might lead to reduction in borrowing program in H2 [October-March] rather than increasing it.”

The government plans to borrow Rs 6.06 lakh crore in the current financial year on a gross basis, including Rs 2.88 lakh crore in the first six months.

The government will watch for one or two more weeks before it decides to tweak the composition of bonds, Garg said, with the demand for shorter-term bonds falling short of expectations. “In last few auctions there have been some devolvement especially in the shorter-tenor bonds, between two to five years...which we did on market demand. Apparently that is not getting realised.” He added, though, that the government will continue with its bond issuances programme despite the spike in yields.

Earlier in the day, a senior official had told reporters that the government may look at issuing more longer-tenor bonds in the coming months.

No Excise Duty Cut

The government is not considering an excise duty cut on petrol and diesel currently, Garg said even as Brent crude topped $80 per barrel for the first time in four years.

Petrol and diesel prices have been on the rise following the Karnataka elections after a 19-day hiatus in its run up. Brokerage firms including Kotak Institutional Equities and ICICI Securities have said that a Rs 4 per litre hike in fuel prices is now in the offing.

Rising oil prices are unlikely to hurt India's economic growth momentum even as it may push up the current account deficit, Garg said. “If [oil] prices go up obviously this will have impact but under different scenarios we see the impact ranging from roughly about $25 billion to maximum $50 billion. Basically it is the oil which impacts the current account deficit, so the impact on oil might influence the CAD.”