In 2015-16, the Government will for the first time, use bonds (Government Securities or G-secs) with a 40-year maturity period for its borrowing. Currently, the bonds have a maturity period of up to 30 years.

“We will use a 40-year bond to borrow up to ₹10,000 crore,” Finance Secretary Rajiv Mehrishi told reporters after a meeting with Reserve Bank of India officials. The actual amount could be between ₹5,000 crore and ₹8,000 crore. However, dates are yet to be finalised for the launch of this longer-maturity bond.

The announcement came even as RBI Deputy Governor R Gandhi, addressing a debt market summit in Mumbai, said the corporate debt market had been hindered by the surge in government borrowing through bonds.

The Centre uses dated securities for long-term borrowing. These securities carry an interest rate (technically known as a coupon rate) and are issued for more than one year.

The Finance Ministry, in consultation with the RBI, has decided to borrow ₹3.60 lakh crore during the first six months of the next fiscal year.

This is 60 per cent of the gross borrowing target of ₹6 lakh crore proposed in the Budget.

However, as a percentage of total borrowing, this is lower than the amount borrowed in previous years. Bonds with longer maturity are popular in various countries. The UK, for instance, has Government bonds with a maturity of up to 60 years.

Stabilising system

Rajat Bhargava, Joint Secretary in the Finance Ministry, said that such bonds bring stability in the system, besides helping in benchmarking interest rates and easing redemption pressure. These bonds could be very useful for pension funds in their long-term investment strategy.

The Finance Secretary said that average weekly borrowing during the first six months would be ₹17,000-18,000 crore. With repayment of over ₹1.35 lakh crore, net borrowing would be ₹2.25 lakh crore.

Short-term borrowing

Mehrishi also said that short-term borrowing through Treasury Bills (T-Bills) during the first quarter of the next fiscal year would be ₹1.88 lakh crore.

T-Bills are instruments issued in three tenors — 91 days, 182 days and 364 days.

They do not carry any interest, are issued at a discount, and are redeemed at face value on maturity. Borrowing through these instruments is not included in the gross borrowing.

The Government also has plans to switch high-cost and near-maturity securities worth ₹50,000 crore with low-cost and long-maturity securities. Last year, it switched securities worth ₹48,000 crore.

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