Government’s total public debt increases by 2.6% at end-December 2013

(The total public debt of the Government increased to Rs.4, 606,350 crore at end-December 2013 from Rs.4, 488,905 crore at end-September 2013, accounting for (QoQ) increase of 2.6% as compared with an increase of 4.6% in the previous quarter (Q2 of FY14))

Snapshot of the report on Public Debt Management for October-December 2013

Government Finances—  The gross fiscal deficit of the Central Government in budget estimates (BE) 2013-14 (FY14) was placed at Rs.5,42,499 crore (4.8% of GDP) as against Rs.5,20,925 crore (5.2% of GDP) in the revised estimates (RE) for 2012-13. The gross and net market borrowing requirements of the Government in FY14BE were placed at Rs.5,79,000 crore and Rs.4,84,000 crore, respectively, which were reduced in revised estimates (RE), as per interim Budget for 2014-15, to Rs.5,63,911 crore and Rs.4,53,902 crore. The gross and net market for 2014-15 are budgeted to increase moderately to Rs.5, 97,000 crore and Rs.4, 57,321 crore.

Gross tax collections during the period, showing a growth of 9.2% against a budgeted growth of 19.1%, at 60.2%of BE were lower than 63.2% a year ago. Collections from corporation tax, projected to grow at 16.9%, stood at Rs.2, 60,447 crore, showing a growth of 9.6% over Rs.2, 37,626 crore in the same period of previous fiscal year. Personal income tax collections at Rs.1, 53,662 crore showed a growth rate of 19.8% against 20.2% projected in BE for FY14. Among the major indirect taxes, collections from customs duties showed a moderate growth of 4.3% during April-December 2013 (BE 13.6%), while growth in excise duties was negative at (-) 6.9% (BE 14.9%). Service tax collections increased by 19.8% during the period under discussion against 35.8% in the BE. Total expenditure during April-December 2013 at 69.9% of BE was higher than 66.5% during the same period of previous year. As a result of lower tax collections and increased expenditure, revenue deficit and fiscal deficit during April-December 2013 at 97.7% and 95.2% of BE were higher than 85.1% and 78.8%, respectively, during the same period a year ago. Primary deficit at 155.9% of BE was also higher than 104.6% during the corresponding period of the previous fiscal year.

   Fiscal outcome April-December 2013                                     (Rs. Crore)

Source: Ministry of Finance, Govt of India

Outstanding Public Debt— The total public debt (excluding liabilities under the ‘Public Account’) of the Government increased to Rs.4, 606,350 crore at end-December 2013 from Rs.4, 488,905 crore at end-September 2013. This represented a quarter-on-quarter (QoQ) increase of 2.6% compared with an increase of 4.6% in the previous quarter (Q2 of FY14). Internal debt constituted 90.9% of public debt, compared with 90.6% at the end of the previous quarter. Marketable securities (consisting of Rupee denominated dated securities and treasury bills/CMBs) accounted for 83.7% of total public debt, compared with 83.1% end-September 2013. The outstanding internal debt of the Government at Rs.4, 189,929 crore increased marginally to 38% of GDP from 37.9% at end-September 2013.

   Composition of Public debt

    Source: Ministry of Finance, Govt of India

In the secondary market, bond yields, hardened since October 10, 2014 and ended quarter at elevated level after touching a high of 9.11% in mid-November. 10-year yield traded at 8.79% at the start of the quarter and softened thereafter to a low of 8.49% (October 10) on back of reduction in the marginal reduction facility (MSF) rate as well as introduction of term repo auctions aimed at normalizing liquidity conditions. However the tightening liquidity condition and continued supply pressure abetted by fears of a sooner-than-anticipated Fed tapering pushed the yield to a high of 9.11% on November 21. Issuance of new 10-year securities (Nov.22) and RBI’s decision (on Dec. 18) to keep the policy rates on hold kept the rising yields in check though announcement of US Federal Reserve decision to commence tapering exerted pressure on yields. 10-year yield traded in the range of 8.49-9.11% during Q3 of FY14 and closed at 8.84% at end-December 2013 as compared with close of 8.83% at end-September 2013.

As compare to the previous quarter, bonds yields marginally moderated over shorter to medium term. At the longer end, the curve was flat at end quarter. As a result, the yield curve flattened during the quarter in above 10-year maturities, while steepening in maturities below 10 years. Moreover, yield curve showed inversions at a few maturity points. The 1yr-10yr spread increased to 13 bps at end-December 2013 from (-)1 bps at end-September 2013, while 10yr-30yr spread declined to 39 bps from 48 bps over the same period. Overall, the 1yr-30yr spread at end of Q3 of FY14 increased to 53 bps from 46 bps at the end of the previous quarter. Reduction in MSF rate by RBI and measures taken to normalise liquidity condition, such as term repos, helped the treasury bills yields curve shift downward during the quarter with a sharper decrease in shorter maturities. As a result, the treasury bill yield curve became flatter during the quarter

Warm regards,

Dr. S P Sharma

Chief Economist