India Said Likely to Start Year With $13.7 Billion of Cash

India’s government will probably have a 750 billion rupee ($13.7 billion) cash balance at the start of the next fiscal year after reining in spending, a Finance Ministry official with knowledge of the matter said.

The money will assist the government in paring the budget deficit in the year starting April 1, the official said, asking not to be identified as the information isn’t public. The government plans to achieve 60 percent to 65 percent of its market-borrowing target for the year by September, the official said, adding the calendar for debt sales may be set by the ministry and the central bank in the third week of March.

The nation may issue inflation-indexed bonds for the first time in April, using the wholesale-price index to gauge the rise in the cost of living, the official said. Another Finance Ministry official confirmed the wholesale measure is likely to be used, asking not to be identified as the plan isn’t public.

The government in the Feb. 28 budget set a target for record gross borrowing of 6.29 trillion rupees in the year to March 2014, to help fund a jump in spending on the poor before elections due by 2014. At the same time, the administration is relying on higher tax revenues, asset sales and subsidy cuts to trim the fiscal shortfall and avert a credit-rating downgrade.

“In the first quarter normally revenues are not that high, but with this kind of balance, the government will be able to spend,” said Prasanna Ananthasubramanian, an economist at ICICI Securities Primary Dealership Ltd. in Mumbai.

Inflation Bonds

Benchmark 10-year government bonds erased gains on concern supply starting next month will damp demand for debt. The yield on the 8.15 percent note due June 2022 rose to 7.86 percent from 7.85 percent earlier, according to the central bank’s trading system. The BSE India Sensitive Index rose 0.1 percent as of 2:05 p.m. in Mumbai. The rupee strengthened 0.3 percent to 54.57 per dollar, climbing for a second day.

The plan for inflation bonds is part of a push to wean Indians off purchasing gold as a hedge against price increases. Imports of the precious metal stoked a record current-account deficit of $22.31 billion in the quarter ended Sept. 30.

The wholesale-price index rose 6.62 percent in January from a year earlier, the slowest pace in more than three years. A separate consumer-price gauge surged 10.79 percent, one of the fastest rates in the world.

Finance Minister Palaniappan Chidambaram last week set a goal of narrowing India’s fiscal deficit, which is the widest in major emerging nations, to 4.8 percent of gross domestic product in 2013-2014, from 5.2 percent. The target for gross borrowing, excluding a planned debt switch and buyback, is 5.79 trillion rupees.

Before it's here, it's on the Bloomberg Terminal.