Bonanza small savings inflows may give India room to lower FY24 market borrowing: FinMin source

Reducing bond sales helps the government to keep a lid on its borrowing cost.

A surge in India's small savings collections may give the Indian government room to lower its borrowings through government securities in the second half of the current financial year, a senior finance ministry official said on August 24.

Net collections under the small savings fund has seen a growth of around 48 percent on year for the current financial year and has reached 34 percent of the Budget target for 2023-24 as of now, the official said, adding that if the current growth rate continues, "bonanza" inflows would help the government to reduce its reliance on market borrowing to funds its fiscal deficit.

The government plans to borrow a record Rs 15.43 lakh crore through the sale of dated securities on a gross basis in 2023-24, of which Rs 8.88 lakh crore is being borrowed in the first half of the current fiscal.

The government funds its fiscal deficit through a mix of borrowings from the bond market, proceeds from small savings and draw down from cash balance. Reducing bond sales helps the government keep a lid on its borrowing costs. The central government typically decides the borrowing calendar for October-March around September-end.

The official added that the Centre is "not happy" with the current level of 10-year government bond yields that has been of late hovering around 7.20 percent. To be sure, government bond prices have recovered to an extent after it slumped last week due to the higher-than-expected Consumer Price Index (CPI) inflation figure for July and a surge in US Treasury yields.

India's headline retail inflation rate crashed past the upper bound of the Reserve Bank of India's (RBI) 2-6 percent tolerance range in July and shot up to a 15-month high of 7.44 percent, spurred on by a massive increase in vegetable prices, data released by the Ministry of Statistics and Programme Implementation on August 14 showed.

The bumper collections in the small savings schemes were primarily driven by two plans - the recently-unveiled Mahila Samman Savings Certificate, and the Senior Citizen Savings Scheme for which the government raised the maximum deposit to Rs 30 lakh from Rs 15 lakh earlier in the Union Budget for 2023-24.

While the Senior citizens small savings scheme has seen a 176 percent jump in net inflows in April-July at over Rs 55,000 crore compared to Rs 19,895 crore during the same period last year, the Mahila Samman Savings Certificate has seen a positive response with 1580 lakh accounts opened during April-August 20, 2023 with net inflows of Rs 9,611 crore during the period, the official added.

With robust small savings collections and tax receipts expected to meet Budget estimates, the government is on track to to meet the fiscal deficit target of 5.9 percent of the GDP, the official said. The Union Budget this year targets a 10.4 percent growth in gross tax revenue in FY24 from Rs 30.4 lakh crore garnered in 2022-23.