The Ministry of Finance on Wednesday had reviewed its borrowing program and decided to trim the outstanding Treasury-bills (T-bills) but increase the debt through dated government securities (G-Secs).
According to a Finance Ministry statement, “The borrowing programme of the Government of India has been reviewed, with RBI, and following decisions taken: (i) The Government will trim down the T-Bills from present collections of ₹ 86,203 crore to ₹ 25,006 crore by March end, 2018. (ii) The Government will raise additional market borrowings of ₹ 50,000 crore only in fiscal FY18 through dated government securities.”
Effectively, the government maintained that between December 2017 and March 2018, there will not be any net additional borrowing as T-Bills will be run down by ₹61,203 crore and additional G-Sec borrowing will be ₹ 50,000 crore.
Most of the focus in the press was on the impact on fiscal deficit with analyst predicting a slippage of 0.3 per cent above the stated target of 3.2 percent. Regular commentators on the economy also said that the need for additional borrowing was driven by lower collections after the roll out of the Goods and Services Tax.
But the move to lower T-bills and push for G-secs also merits much attention. By doing this, Finance Minister, Arun Jaitley will be cleaning up the books of the current financial year at the cost of a diverted liability on a future government.
According to the Reserve Bank of India, Treasury bills or T-bills, which are money market instruments, are short term debt instruments issued by the Government of India and are presently issued in three tenors, namely, 91 day, 182 day and 364 day. Essentially this means that the government will return the amount that has been raised from the market in less than a year under the T-bill.
Now, according to the RBI, Dated Government securities are long term securities and carry a fixed or floating coupon (interest rate). The tenor of dated securities can be up to 30 years. According to the Finance Ministry statement, the G-Secs on offer in the current fiscal have a payback tenure ranging from 5 years to 20 years and above.
Effectively this means that the current government is lowering its short-term liabilities and passing them over to a future government.
Also, this is not some thing that the government has done hurriedly solely in light of lower GST collections. The government has had its eyes on the long term debt raising instruments for a while. A June 2017 circular raising the foreign portfolio investor investment limit in G-Secs reflects the government’s intention to encourage investments by them in this instrument.