Written by Sunny Verma
| New Delhi |

Updated: February 2, 2020 12:21:54 pm

“This will give retail investors access to government securities as much as giving an attractive investment for pension funds and long-term investors,” Sitharaman stated whereas presenting the Budget on Saturday.

Finance Minister Nirmala Sitharaman introduced quite a lot of measures in Budget 2020-21 to widen and deepen the company bond and the federal government securities market.

The Centre additionally unveiled measures to extend bond market entry of micro, small and medium enterprises (MSMEs). With the federal government’s borrowing programme rising subsequent yr, alongside with enlargement within the fiscal deficit to three.5 per cent of GDP, the Centre plans to drift a brand new debt exchange-traded fund (ETF) that may comprise of presidency securities (G-sec). This will be sure that retail investors — who’re to this point not investing a lot within the G-sec market — are in a position to purchase a basket of presidency bonds via the models within the proposed debt ETF in a seamless method. The authorities expects the debt ETF to enhance liquidity within the bond market, improve investor base and smoothen its borrowing plans.

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The recently-launched Bharat Bond ETF, which comprised AAA-rated debt papers of huge government-owned corporations, efficiently raised Rs 12,400 crore in its maiden supply. The debt ETF offers of presidency securities will present an choice to conservative investors to earn round 6.5 per cent to 7 per cent yield, alongside with the power of in a single day liquidity as ETFs are listed on exchanges. This may also assist the Centre diversify its sources of borrowings, as at present solely institutional investors are the important thing consumers of those debt papers. “This will give retail investors access to government securities as much as giving an attractive investment for pension funds and long-term investors,” Sitharaman stated whereas presenting the Budget on Saturday.

Apart from home retail investors who can now put money into G-sec through ETF, the finance ministry has additionally proposed to open sure class of presidency securities for non-resident investors. The authorities has pegged its internet market borrowings at Rs 5.36 lakh crore for 2020-21, up from Rs 4.99 lakh crore in 2019-20. Enabling entry to new class of investors will be sure that the federal government’s borrowing programme goes on easily with out placing upward stress bond yields.

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With regard to company bonds, the Centre has considerably raised funding restrict for international portfolio investors (FPIs) to 15 per cent of the excellent inventory of company bonds from 9 per cent at current. This is geared toward attracting fund flows and comes at a time when the debt market witnessed an outflow of Rs 11,917 crore in January this yr. December 2019 noticed outflows of Rs 4,616 crore, whereas November 2019 outflows have been Rs 2,358 crore. While the fairness funding in calendar yr 2019 was Rs 101,122 crore, debt market might appeal to solely Rs 25,882 crore. The Reserve Bank had final December raised FPI funding limits in G-sec in addition to short-term bonds.

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Meanwhile, to enhance MSME entry to debt market, the federal government will introduce a scheme to offer subordinate debt (or quasi fairness) for MSME entrepreneurs. This debt will probably be absolutely assured via the Credit Guarantee Trust for Medium and Small Entrepreneur, and allow MSMEs to satisfy their working capital credit score necessities, thereby, easing their credit score crunch and bettering liquidity place. The Budget additionally proposed measures to allow non-banking monetary corporations (NBFCs) to offer bill financing to MSMEs via the Trade Receivable Discounting System, or TReDS. As MSMEs normally get funds after a lag of few weeks, funds raised towards billed bill helps them enhance their working capital place.

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