Govt plans to cancel Rs 12K cr bond auction

Business

After sharp cuts in spending helped the government improve its cash position, the finance ministry has decided to cancel its last bond auction for 2012-13 that was expected to raise Rs 12,000 crore.

"On review of the government of India's cash position and funding requirement, it has been decided, in consultation with Reserve Bank of India (RBI), to reduce the government market borrowing through dated securities by Rs 12,000 crore for the current financial year," said a finance ministry release on Monday.

The Centre had kept a gross borrowing target of Rs 5.7 lakh crore for the fiscal, of which it has raised 5.58 lakh crore. The bond auction on February 22 was the government's last such exercise for the current financial year.

Strict spending checks initiated by finance minister P Chidambaram to meet the fiscal deficit have helped the government garner a cash balance of over Rs 80,000 crore.

"It is a choice between whether you want to continue borrowing this fiscal or whether we can balance our books till we start tapping the markets in the new financial year," said a senior government official.

The cash balance is also expected to help the government meet nearly Rs 95,000 crore in bond redemption.

With a fiscal deficit target of 5.3 per cent of the GDP for 2012-13, the finance ministry has cut down by 20 per cent sanctioned Budgets of ministries and also refused additional fund demands.

In the first nine months of the fiscal, the government has spent just 66.5 per cent of its total Budgeted spending of Rs 14,90,925 crore.

"The decision to cancel the bond auction is a welcome move and will have a favourable impact on bond yields," said Saugata Bhattacharya, chief economist at Axis Bank, adding that there are liquidity implications if the government has an inordinate amount of cash balance.

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