The framework for India's proposed sovereign green bond is almost ready and the instrument will be issued in the second half of the current financial year, a senior finance ministry official said.
"We have spoken to the World Bank. They are providing us with some guidance. We are getting the framework vetted by a second party that is completely independent," the official told Moneycontrol on condition of anonymity.
"It should be part of the H2 borrowing calendar," the official added.
The Centre will announce its borrowing schedule for the second half of FY23 at the end of September.
Announced by Finance Minister Nirmala Sitharaman in her FY23 budget speech in February, the green bonds will be part of this year's record gross borrowing budget estimate of Rs 14.95 lakh crore.
No hike in market borrowing
With the Reserve Bank of India (RBI) switching certain government securities just a couple of days before the presentation of the budget and the Centre pegging its first-half borrowing at Rs 8.45 lakh crore, the second-half borrowing amount works out to be Rs 5.86 lakh crore.
The finance ministry official quoted above said there was no reason why the Centre would increase its stated borrowing programme in October 2022-March 2023.
"Unless there are new expenditures which come up between now and the end of FY23, we will meet the fiscal deficit target," the official added.
The central government has set itself a fiscal deficit target of Rs 16.61 lakh crore, or 6.4 percent of GDP, for FY23. Data released on August 31 showed the government's finances to be in good shape in April-July, with the fiscal deficit at only a fifth of the full-year target at the end of the first third of the year. Comfort on the receipts front has also allowed the Centre to frontload the transfer of funds to states.
Green bond rates
The official was insistent the government wanted a "very fine rate" on the green bonds when they are finally issued.
"A discount of 2 basis points, 5 basis points, or 10 basis points is not enough. We are already borrowing from the market. And putting an entirely new framework for green bonds into place takes effort. So it should be worth the effort. We would like to see a very, very attractive discount (on prevailing government bond yields)."
Further, the sale of green bonds in subsequent years would depend on the interest rate demanded at the maiden issue.
"The rates should give us some value for the effort we put in. The discount should incentivise me to issue more of these bonds," the official argued.
When asked if the framework for the green bonds provided any incentives to investors so that they would ask for lower interest rates, the official said there was not going to be any such feature as the demand for these bonds had come from the market.
"The government is borrowing and is committed to provide resources to these green projects in any case," the person said, adding that the list of these projects is ready.
“We just have to figure out which of them would lead to the quickest absorption of money because we are not inclined to keep the funds with us."
A final call is also to be made on whether the government will disclose the full list of projects which will be financed through the proceeds of these green bond issuances.
"I think that should be necessary. If we tell the investors where the money is going, they will be more convinced," the source added.