India will borrow an additional Rs 40,000 crore ($7.53 billion) through bonds in the fiscal year that ends in March, the central bank said, roughly in line with market expectations and ending weeks of speculation.
India’s fiscal position has been deteriorating as economic growth slows, and anticipation that New Delhi would borrow additional funds has been weighing on Indian markets.
The yield on the benchmark 10-year bond hit a three-week high on Friday as traders braced for more borrowing. In addition to the bond borrowing, the central bank announced a larger-than-expected government borrowing plan through short-dated paper for the January-March quarter.
“The increased borrowing through dated securities was more or less expected,” said Nirav Dalal, president and managing director, debt capital markets at Yes Bank in Mumbai. “But that number coupled with the net increase in T-bill borrowing is a lot more than the market was expecting," “I don’t think the bond market is going to like it,” Dalal said.
Earlier on Friday, the government reported that its fiscal deficit for the first eight months of the financial year ballooned to nearly 86% of its full-year target.
The government is widely been expected to miss its fiscal deficit target of 4.6% of GDP for the fiscal year that ends in March by a full percentage point or more. The additional borrowing will take place starting in the first week of January and run throught the week of March 5-9, the Reserve Bank of India’s new borrowing calendar showed.
In late September, the government increased its borrowing plan for the second-half of 2011-12 to Rs 220,000 crore, from the budgeted Rs 167,000 crore.