R JagannathanFirstpost.com
What kind of problems will the next government face once it takes over in May 2014?
There is, of course, the aftermath of the growth slowdown, high inflation, rising subsidies, and unpaid bills from UPA-2 (fuel and fertiliser subsidies, and new ones under the Food Security Bill) to deal with.
But UPA will also be leaving a ticking time-bomb in terms of a rising burden on debt repayments from 2014-15. This is partly the result of the shift in the maturity profile of government papers issued in 2008-10, when fewer investors wanted longer-dated paper, but it is also the result of the UPA's calculated decision to ensure that it has very low debt repayments scheduled for 2013-14 – the current year, and the UPA's last before the next general election.
One look at the accompanying chart will tell you the whole story. While debt redemptions in 2013-14 are very low (below Rs 500 billion, or Rs 50,000 crore), from 2014-15 onwards the redemption rates shoot up Rs 1,50,000-Rs 2,50,000 crore annually over the coming five years.
A high redemption rate means large loans will have to be raised just to repay old, maturing loans. The Financial Stability Report of the Reserve Bank of India, released on 30 December, has this to say. "The average life to maturity of the outstanding GoI’s dated securities, at 9.67 years, is quite elongated and thus, does not pose any significant rollover risk. Nonetheless, redemption pressure would increase significantly starting from 2014-15 to 2019-20."
How did this happen? “The demand for long-dated government securities dwindled in the aftermath of the global financial crisis. Thus, a large portion of the government market borrowing programme during 2008-09 and 2009-10 was completed by issuing relatively short and medium-term securities which are maturing between 2014-15 and 2018-19.” P Chidambaram was Finance Minister in 2008-09, and Pranab Mukherjee from the year after that - the two years in which this problem was created. How convenient for the outgoing government that it not only gets to pay the easy bills now falling due, while leaving its successor with a huge outgo.
The writer is editor-in-chief, digital and publishing, Network18 Group
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