India may use more CMBs to meet debt obligations in FY21

India’s higher market borrowings can impact the fiscal deficit. The government is likely to opt for auctioning of more cash management bills (CMBs) to meet the debt obligations of government bonds in the next fiscal standing at Rs3.02 lakh crore to avoid putting pressure on higher borrowings from the market.

The redemption pressure that is to come in FY 21 include, on April 9, the debt obligations government has to meet is Rs35,268.36 crore whole on April 22, the amount is Rs6,000 crore and on May 3rd, the redemption pressure is of Rs71,130 crore and on June 9, it is Rs67,182 crore, as per RBI data.

Though the Union Budget 2020 will decide the fiscal deficit for the next financial year, it is now almost certain that the current fiscal deficit of 3.3 per cent may be unattainable given the weak tax and disinvestment revenue positions.

Excess borrowing to meet debt servicing will create further mismatch between the revenue and expenditure which the government may try to avoid next fiscal. This leaves to banking on CMBs more for debt servicing to a large extend, said sources.

The Reserve Bank of India (RBI) on Friday announced the auction of a 63-Day Government of India Cash Management Bill. The central bank carries on the auctioning of GSec on behalf of the government.

Cash Management Bills are short term bills issued by the central government to meet its immediate cash needs.

The bills will be auctioned on Monday and will mature on March 13, 2020 will raise Rs30,000 crore. Government bonds worth Rs61,000 crore came up for redemption on Jan.2 when investors received the money back with interest, RBI data revealed.

Similar maturities are falling due next two weeks for Rs74,000 crore. On January 16, the redemption demand for Rs74,000 falls which is a 8.19 per cent G-Sec issued on Jan.16, 2012.

The central bank has announced its third ‘operation twist’, a move in which the government’s banker will buy G-Secs of long and medium tenure worth Rs 10,000 crore and at the same time sell government bonds of less than one year tenure. This is the third such operation by the RBI in as many weeks, aimed at pulling down the 10-year benchmark yield, which is a key determinant of the lending rates by banks. CMBs have a tenor usually less than 91 days while the T-bills have tenor 91 days, 182 days and 364 days. The day of issue of CMBs depend on the temporary cash requirement of the government. Since the government’s revenue position is weak and the revenue expenditures are high, there is already a risk of running.

RBI last year cut interest rates five times totalling 135 basis points. On Dec.19, it announced the first tranche of “Operation Twist”, and the fall in yield on the 10-year G-Sec was 80 bps to 6.75 per cent. But after three tranches of the operations, the benchmark yield fall on 10-year G-Secs has been 24 bps to 6.51 per cent.

India has to carry forward unfinished tasks in last year’s budget in this year’s (2020-21) budget, which will be presented in the parliament on Feb.1.

Finance Minister Nirmala Sitharaman, who will attain the distinction of presenting two budgets in less than a year, will be in focus in February as how she steers the economy out of one of the most challenging times. She has not seen the best of the times on the growth side since she assumed office at North Block in June 2019.

Nirmala Sitharaman along with junior Finance Minister Anurag Thakur presented the annual federal budget for 2019-20 in New Delhi on July 5, 2019.  Ahead of Budget 2020-21, Prime Minister Narendra Modi on Thursday met here with around 40 economists, industry heads, experts, bankers and entrepreneurs where he addressed them on India’s target of achieving a $5 trillion economy, according to official sources.

The meeting discussed ways of boosting growth and job creation, apart from a host of other issues raised by the participants, including investment climate, credit growth and structural reforms.

The meeting, seen as a pre-Budget discussion, is expected to lead to the incorporation of some of the suggestions in the Finance Minister’s presentation on February 1, sources said. Modi has already met industry captains recently to seek their suggestions.  “The Prime Minister addressed the gathering of industry, economists, experts and entrepreneurs on the $5 trillion dollar target and their role in helping the economy achieve it. The meeting discussed the consumption slowdown, investment climate, exports, credit growth, governance of PSBs (public sector banks), asset monetisation, real estate, external commercial borrowings, the MGNREGA rural emplyment scheme, textiles, start-ups and cluster developmentm” among others”, one source said.

Indo-Asian News Service