'Proposal to introduce a new Govt securities bill is another welcome step'

Mr Arun Kaul, Managing Director, PNB Gilts

Reacting to the union budget 2002-03, Mr Arun Kaul, Managing Director, PNB Gilts said as follows:

“The Union Budget 2002-03 while proposing to strengthen the process of second generation economic reforms further aims to consolidate and implement these policies at all levels.”

He further added

“In the Govt securities market, the proposal to announce an issuance calendar for dated securities is a move in the right direction as it would help the investor plan the investments in advance and thus would ensure stability in the markets. Proposal to introduce a new Govt securities bill replacing the old Public Debt Act of 1949 is another welcome step in this direction.”

Reflecting the deep concern at the deteriorating fiscal situation both at the Centre and State, the Budget proposes to bring the Fiscal Responsibility and Budget Management Bill. Administered rate of interest on small savings and RBI relief bonds have been reduced by 50 basis points. Further, these administered rates are now being benchmarked to average annual yields of govt securities of equivalent maturities in the secondary market. Reduction in small savings rate and linking it with the G sec yields is a step forward in the deregulation of interest rates in the economy and reducing the interest payment burden of the govt.

The various budget announcements relating to tax structure were perceived by the market as harsh and not saving oriented. Reacting to the budget annoucements, both stock market and Govt securities turned very bearish. The post budget yield on a 10 year benchmark g sec paper increased to 7.53% from a level of 7.28% in the pre budget. The high level of budgeted gross market borrowings at Rs 1,42,879 crore, disinvestment proceeds at Rs 12000 crore, higher defence outlay coupled with less than expected small saving rate cut of 50 basis points acted as a dampener to the market.

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