Indian Govt plans extra borrowing of $9.45 bln in FY 08/09

by Amitjha | February 12, 2009 at 01:51 am

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This year government will seek the mandate of public, and they do not want take any risk.Government of India is planning to raise $9.45 bln in year ending 08-09.The inflation is under control, an ticking around 4.5 this week.The rising prices was the major concern of the government.The world financial crisis and its impact on Indian market is started showing effect in job market.Government is trying hard to cushion the Public sector units in these recessionary phase.How long it will be able to protect the ailing PSU, at least they will try to pass on the burden to the next government.

There is no big issue for the opposition to use, but if the fire in job market spreads, this will certainly given an advantage to them.

India will borrow an extra $9.45 billion by late March from the market, an official said on Tuesday, sending bond yields higher and raising concerns about the state of public finances.

The extra borrowings are largely aimed at supporting the economy, which is expected to expand at its slowest pace in six years in 2008/09 as the global economic crisis takes a toll.

"We had discussions with the Reserve Bank of India. The borrowing will be between Feb. 20 and March 20 to the order of 46,000 crore (460 billion rupees)," Economic Affairs Secretary Ashok Chawla told reporters.

He said the extra borrowing would be done in four tranches. India's fiscal year ends on March 31.

The government's finances have deteriorated in 2008/09 due to increase in salaries of government employees, large subsidies on oil and fertilisers and waivers on loans for small farmers, prompting the government to borrow more from the market.

A slowing economy has meant that the government receipts have remained sluggish while it had to forego a substantial amount in duty which were aimed at boosting demand.

The central bank said it would conduct the market borrowings in a non-disruptive manner.

The 8.24 percent federal bond yield jumped 17 basis points after the government's announcement, before triming the rise.

At 0848 GMT, the 8.24 percent bond yield was at 6.44 percent after rising as high as 6.47 percent from 6.30 percent before the announcement. It had closed at 6.33 percent on Monday.

"Yields will move up now, but eventually come down along with the gradual completion of this fiscal year's borrowing programme," said Gopal Tripathi, a fixed income dealer at HDFC.

Anoop Varma, an associate vice president with Development Credit Bank said everyone would now want to sell on upticks unless there was a rate cut.

The government will roll out a temporary budget on Feb. 16 but its deteriorating public finances have already posed a concern for rating agencies.