Informist, Thursday, Feb 2, 2023

--Econ secy: Expect big part of FY23 small savings mop-up in Feb-Mar

--Small savings rate hikes, new schemes may boost mop-up

--On funding fiscal gap: See natural savings in FY23 spending

--Can use WMA, T-bills to manage shortfall in small savings

--On European regulator-RBI tiff: Both are right

--Will take a final call on FY24 green bond issuance in H2 

--To use proceeds from FY23 green bonds over next 3 qtrs

--On global bond listing: It is not on front-burner

--Conservative with RBI dividend estimate for FY23, FY24

By Krity Ambey and Sagar Sen 

NEW DELHI – The upwardly revised estimate of the government borrowing through small savings in the current financial year ending March seems to be a tall order, given the shortfall in collections so far.

But the government has a back-up plan. It could avail the Ways and Means Advances facility or issue treasury bills if the collections from small savings fall short, Department of Economic Affairs Secretary Ajay Seth said today in an interview with Informist. It is also counting on "natural savings" in expenditure to limit any cash crunch, he added.

"We do not expect to see any major surprise on the expenditure side. If at all, there will be some natural savings in the expenditure outlay. But not that any forced savings into the system," Seth said.

"What if small savings are low? Then it becomes a cash management issue. For managing cash, there are different instruments available, ways and means advances are available or short-term T-bills are available," Seth said.

The government also expects higher inflows in small saving schemes during Feb-Mar, the last two months of the financial year, the secretary said. "I am sure the numbers which we put out in the revised estimate will get neutralised in the small savings."

The Budget for 2023-24 hiked the revised estimates for borrowings from the small savings fund in 2022-23 to 4.39 trln rupees from the budgeted 4.25 trln rupees, to finance 25% of its revised fiscal deficit of 17.55 trln rupees. The government typically finances its fiscal deficit through a combination of market borrowings, small savings receipts, and a drawdown of cash balance.

However, data suggests that small savings fund collections have been trailing the target by a considerable margin this financial year. As per government data released on Tuesday, collections under the small savings fund during Apr-Dec were 12.4% lower on year. In fact, small savings collections have been lower year-on-year each month since June.

If the small savings collection for the year falls short of the revised estimate, the government would have to find alternative means of funding its fiscal deficit. But Seth was hopeful that such a situation would not arise, as higher interest rates on these instruments may lure savers towards the fag end of the year.

"Moving forward after a gap of almost two years, the government has increased interest rates in all savings instruments, except a couple of them where tax incentives are involved," Seth said.

In December, the government had hiked interest rates on some small savings schemes for Jan-Mar. Rates were hiked by 20-110 basis points on monthly income account schemes, three-year time deposits, one-year time deposits, and senior citizen savings scheme, among others. However, the interest rate on Public Provident Fund was kept unchanged for the tenth consecutive quarter.

The one option that the government wants to steer clear of is resorting to additional market borrowing through dated securities in the current year, Seth said. "We do not want to surprise the market in any manner," he said.

The Budget has pegged the revised estimate of net market borrowing for 2022-23 at 11.08 trln rupees and gross borrowing at 14.21 trln rupees. The government’s borrowing programme for the current year is scheduled to end on Feb 24.

FY24 GREEN BONDS

Of the gross market borrowing estimated for 2022-23, government will raise 160 bln rupees through sovereign green bonds. The government issued first tranche of green bonds worth 80 bln rupees on Jan 25 and will issue the next tranche on Feb 9.

The proceeds from green bonds issued this year "would be utilised over the next three quarters," Seth said. The government will take a call on issuance of green bonds in 2023-24 "when the (borrowing) calendar for second half of 2023-24 has to be decided".

The government had announced its intent to issue its maiden green bonds in the Budget for 2022-23. The proceeds from these bonds will be deployed in public sector projects that help reduce the carbon footprint of the economy.

GLOBAL BOND INDEX

Elaborating on government bonds, Seth said that the listing of Indian bonds on global indices is "not on the front-burner". 

The proposal to include Indian bonds in global indices was shelved after the 2022-23 Budget did not contain the tax amendments that were required to list these papers on international settlement platform Euroclear.

Index providers were said to be insistent on overseas settlement of Indian debt, although this is not a formal condition for inclusion in the index.

REGULATOR RUN-IN

On the recent stalemate between the Reserve Bank of India and the European Securities and Market Authority, Seth said: "There is no tiff going on. ESMA (European Securities and Market Authority) has its own mandate and the RBI, as the central bank for us, has its own perspective. Both are right in their own manner."

The European Securities and Market Authority has proposed to derecognise six Indian counterparty clearing corporations from April, as they did not comply with the regulations of the European market regulator. The RBI and the Securities and Exchange Board of India are uncomfortable with scrutiny and inspection by overseas market regulators over the activities of Indian clearing corporations and fear this could set a precedent for other countries to follow suit.

RBI DIVIDEND

On the sharp downward revision in the dividend from the RBI and public sector lenders in the current year, Seth said, "as far as non-tax revenues are concerned, our attempt is to be conservative about it, and then have a pleasant surprise, rather than have an aggressive number".

The Budget for 2023-24 lowered its estimate of dividend from the RBI and public sector financial institutions to 409.53 bln rupees from 739.48 bln rupees for this financial year. The dividend estimate for 2023-24 is 480 bln rupees.   End

Edited by Ranjana Chauhan

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (11) 4220-1000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2023. All rights reserved.

Informist, Thursday, Feb 2, 2023

--Econ secy: Expect big part of FY23 small savings mop-up in Feb-Mar

--Small savings rate hikes, new schemes may boost mop-up

--On funding fiscal gap: See natural savings in FY23 spending

--Can use WMA, T-bills to manage shortfall in small savings

--On European regulator-RBI tiff: Both are right

--Will take a final call on FY24 green bond issuance in H2 

--To use proceeds from FY23 green bonds over next 3 qtrs

--On global bond listing: It is not on front-burner

--Conservative with RBI dividend estimate for FY23, FY24

By Krity Ambey and Sagar Sen 

NEW DELHI – The upwardly revised estimate of the government borrowing through small savings in the current financial year ending March seems to be a tall order, given the shortfall in collections so far.

But the government has a back-up plan. It could avail the Ways and Means Advances facility or issue treasury bills if the collections from small savings fall short, Department of Economic Affairs Secretary Ajay Seth said today in an interview with Informist. It is also counting on "natural savings" in expenditure to limit any cash crunch, he added.

"We do not expect to see any major surprise on the expenditure side. If at all, there will be some natural savings in the expenditure outlay. But not that any forced savings into the system," Seth said.

"What if small savings are low? Then it becomes a cash management issue. For managing cash, there are different instruments available, ways and means advances are available or short-term T-bills are available," Seth said.

The government also expects higher inflows in small saving schemes during Feb-Mar, the last two months of the financial year, the secretary said. "I am sure the numbers which we put out in the revised estimate will get neutralised in the small savings."

The Budget for 2023-24 hiked the revised estimates for borrowings from the small savings fund in 2022-23 to 4.39 trln rupees from the budgeted 4.25 trln rupees, to finance 25% of its revised fiscal deficit of 17.55 trln rupees. The government typically finances its fiscal deficit through a combination of market borrowings, small savings receipts, and a drawdown of cash balance.

However, data suggests that small savings fund collections have been trailing the target by a considerable margin this financial year. As per government data released on Tuesday, collections under the small savings fund during Apr-Dec were 12.4% lower on year. In fact, small savings collections have been lower year-on-year each month since June.

If the small savings collection for the year falls short of the revised estimate, the government would have to find alternative means of funding its fiscal deficit. But Seth was hopeful that such a situation would not arise, as higher interest rates on these instruments may lure savers towards the fag end of the year.

"Moving forward after a gap of almost two years, the government has increased interest rates in all savings instruments, except a couple of them where tax incentives are involved," Seth said.

In December, the government had hiked interest rates on some small savings schemes for Jan-Mar. Rates were hiked by 20-110 basis points on monthly income account schemes, three-year time deposits, one-year time deposits, and senior citizen savings scheme, among others. However, the interest rate on Public Provident Fund was kept unchanged for the tenth consecutive quarter.

The one option that the government wants to steer clear of is resorting to additional market borrowing through dated securities in the current year, Seth said. "We do not want to surprise the market in any manner," he said.

The Budget has pegged the revised estimate of net market borrowing for 2022-23 at 11.08 trln rupees and gross borrowing at 14.21 trln rupees. The government’s borrowing programme for the current year is scheduled to end on Feb 24.

FY24 GREEN BONDS

Of the gross market borrowing estimated for 2022-23, government will raise 160 bln rupees through sovereign green bonds. The government issued first tranche of green bonds worth 80 bln rupees on Jan 25 and will issue the next tranche on Feb 9.

The proceeds from green bonds issued this year "would be utilised over the next three quarters," Seth said. The government will take a call on issuance of green bonds in 2023-24 "when the (borrowing) calendar for second half of 2023-24 has to be decided".

The government had announced its intent to issue its maiden green bonds in the Budget for 2022-23. The proceeds from these bonds will be deployed in public sector projects that help reduce the carbon footprint of the economy.

GLOBAL BOND INDEX

Elaborating on government bonds, Seth said that the listing of Indian bonds on global indices is "not on the front-burner". 

The proposal to include Indian bonds in global indices was shelved after the 2022-23 Budget did not contain the tax amendments that were required to list these papers on international settlement platform Euroclear.

Index providers were said to be insistent on overseas settlement of Indian debt, although this is not a formal condition for inclusion in the index.

REGULATOR RUN-IN

On the recent stalemate between the Reserve Bank of India and the European Securities and Market Authority, Seth said: "There is no tiff going on. ESMA (European Securities and Market Authority) has its own mandate and the RBI, as the central bank for us, has its own perspective. Both are right in their own manner."

The European Securities and Market Authority has proposed to derecognise six Indian counterparty clearing corporations from April, as they did not comply with the regulations of the European market regulator. The RBI and the Securities and Exchange Board of India are uncomfortable with scrutiny and inspection by overseas market regulators over the activities of Indian clearing corporations and fear this could set a precedent for other countries to follow suit.

RBI DIVIDEND

On the sharp downward revision in the dividend from the RBI and public sector lenders in the current year, Seth said, "as far as non-tax revenues are concerned, our attempt is to be conservative about it, and then have a pleasant surprise, rather than have an aggressive number".

The Budget for 2023-24 lowered its estimate of dividend from the RBI and public sector financial institutions to 409.53 bln rupees from 739.48 bln rupees for this financial year. The dividend estimate for 2023-24 is 480 bln rupees.   End

Edited by Ranjana Chauhan

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (11) 4220-1000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2023. All rights reserved.