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Monday, Oct 04, 2004

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Centre completes 44 pc borrowings in first half

Harish Damodaran

New Delhi , Oct. 3

IN the first six months of this fiscal, the Centre has managed to complete just a little over 44 per cent of its budgeted market borrowings.

This leaves a sizeable chunk of borrowings to be done during the second half, coinciding with the `busy' credit season.

For 2004-05, the Centre's gross market borrowings are budgeted at Rs 1,50,817 crore, of which Rs 1,24,817 crore are to be raised through dated securities and the remaining Rs 26,000 crore from 364-day Treasury bills. These amounts do not include floatation of bonds under the Market Stabilisation Scheme (MSS).

As against this, the Centre has so far mobilised only Rs 67,000 crore, which includes Rs 54,000 crore from dated securities and Rs 13,000 crore through issue of 364-day bills. That works out to around 44.4 per cent of its total budgeted borrowings for the current fiscal. Compare this to last year, when, by this time, the Centre's borrowings had grossed Rs 93,000 crore, corresponding to 63 per cent of the total sum of Rs 1,47,636 crore that was raised during 2003-04.

What this means is that, unlike last year, when the abundant liquidity in the system permitted the Centre to complete the bulk of its market borrowings programme in the first half, this time round it would be doing so in the `busy' season, when credit offtake from corporates and other commercial borrowers normally registers a pick-up.

Moreover, even the lower amounts mopped up in the `slack' first half of 2004-05 have not been an altogether smooth affair.

On May 6, the Centre raised a 12-year Floating Rate Bond (FRB) at 4.49 per cent per annum, followed by an 11-year FRB on July 1 at 4.71 per cent. But the subsequent floatations on August 9 and September 9 were made at 5.12 per cent and 5.47 per cent for tenors of 11 years and 9 years, respectively. And despite the higher rates offered, the last two FRB auctions saw devolvement on primary dealers and the Reserve Bank of India (RBI).

Similarly, the cut-off prices at 364-day bill auctions have dropped sharply from around Rs 95.75 during April-May to Rs 94.90 in the latest one held on September 29, pointing to a steady tightening of liquidity conditions.

Market players expect significant private placement of gilts with the RBI to take place in the coming months, which will help the Centre to go through its scheduled borrowings, without this causing any further tightening to the detriment of other borrowers.

While the Centre has been able to complete only about 44 per cent of its normal borrowings programme for the fiscal, it has additionally issued dated securities for Rs 25,000 crore and another Rs 13,000 crore worth of 364-day bills under the MSS.

The monies raised through this route are meant purely for sucking out excess liquidity from the system and cannot be accessed by the Centre to finance its fiscal deficit, as in the case of regular borrowings.

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