Due to the ample liquidity in the market, the cost of borrowing for the government declined during the 2020-21.
Despite large borrowing programme of Rs 12.80 lakh crore for the government, the cost of fund has been 80-100 basis points lower than the previous fiscal year.
Average yield in the first half of 2020-21 was 5.82 per cent. This is nearly 1 percentage point lower than the average yield in the previous financial year. During 2019-20, the average yield for the government borrowing was 6.58 per cent.
Even the latest 10-year G-Sec bond auction bear a coupon rate of 5.85 per cent.
For the coming year, the Secretary in the Department of Economic Affairs (DEA) said “rates would be reasonable…it would be at the current level. May be 5-10 basis points here or there.”
Besides market borrowing, he said, there are other alternatives before the government including the National Social Security Fund (NSSF) and multilateral agencies.
“If private sector needs come up, we will be happy to create space for them,” he told in an interview.
The government will borrow Rs 12.05 lakh crore from the market in 2021-22, lower than the Rs 12.80 lakh crore estimated for the current financial year
Earlier in the day, Reserve Bank of India (RBI) Governor Shaktikanta Das said the RBI, as the government’s debt manager and banker, will ensure the orderly completion of the programme in a non-disruptive manner.
“In this context, we look forward to the continuance of the common understanding and cooperative approach between market players and the RBI during 2021-22 also,” Das said.
To broaden government securities market, Das also announced participation of retail investors in G-Sec directly.
“These include introduction of non-competitive bidding in primary auctions, permitting stock exchanges to route primary purchases and allowing a specific retail segment in the secondary market.
“In continuation of these efforts, it is proposed to provide retail investors with online access to the government securities market – both primary and secondary – directly through the Reserve Bank (‘Retail Direct’),” he said.
This will broaden the investor base and provide retail investors with enhanced access to participate in the government securities market, he said.
“This is a major structural reform placing India among select few countries which have similar facilities. This measure together with HTM (held to maturity) relaxation, will facilitate smooth completion of the Government borrowing programme in 2021-22,” he added.
