The Hindu Business Line : Of debt and liabilities

Treasury bills are instruments that finance the short-term requirements of the Government. They are highly liquid having an active secondary market and are issued at a discount to face value.

Parvatha Vardhini C.

Any guesses on how much the Government of India owes various parties? Rs 50,000 crore? Oh, that is huge to you and me, but trivial for the government. Rs 10,00,000 crore?

No, it is almost triple that at around Rs 29,00,000 crore as per the revised estimates for 2007-08. Budget 2008-09 expects this indebtedness to grow by 5.5 per cent to reach Rs 30,60,000 crore by March 2009!

What does this huge figure comprise? If it were a company, sure we would know that it may either be debentures, bonds or, simply, bank borrowings. Is it the same with the government too?

Government debt

The government presents its debts under two broad heads — internal and external. Internal borrowings constitute bulk of the debt, forming almost 95 per cent of the total debt.

Internal debt includes loans raised by the government in the open market, special securities issued to the RBI, rupee securities (non-interest bearing) issued to international institutions such as the IMF and the World Bank and, most importantly, treasury bills issued to State governments, commercial banks and other parties.

Liquid instruments

These treasury bills are instruments that finance the short-term requirements of the Government. They are highly liquid instruments having an active secondary market and are issued at a discount to face value.

The bills may be 14-day bills or 91-day, 182-day or 365-day bills. Since they are issued at a discount, the return for the investor is the difference between the maturity price and the issue price.

Revised estimates for 2007-08 suggest that the liability for 14-day bills is Rs 39,475 crore, 91-day bills is almost Rs 58,000 crore and for 182 and 364-day bills is approximately Rs 8,000 crore and Rs 33,500 crore respectively.

Market Stabilisation Scheme

The money sucked in by the Market Stabilisation Scheme (MSS) is also shown in the government’s statement of liabilities. Introduced in April 2004, the scheme envisages the issue of treasury bills and/or dated securities to absorb excess liquidity arising out of the excessive foreign exchange inflows. In 2007-08, the government capped the value of outstanding liabilities under MSS at any given time (face value of dated securities and discounted value of treasury bills) at Rs 2,50,000 crore. This ceiling applies for the ensuing year too.

The liabilities under MSS are required to be shown separately in the government’s statement of liabilities. For the year-ended March 2008, the liability under MSS is expected to be Rs 2,17,805 crore. By March 2009, the government expects to absorb another Rs 30,000 crore, taking the total liability under MSS to Rs 2,47,000 crore.

The debt of the government also includes others like the outstandings against small-savings schemes, provident funds, deposits under special deposit schemes and reserve funds of departmental undertakings.

These debts are shown under a separate head titled ‘other liabilities’. Revised estimates for other liabilities up to 2007-08 stand at Rs 9,40,240 crore.

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