Volume of Issues of Central and State Government Securities

The growth of government securities market in India and the investor response to the government bond issues can be known from various indicators. One of such indicators is the volume and composition of the government securities. The volume of annual issues by the central government in 1960-61 was Rs.175 crore which increased to Rs.6,95,135 crore in 2000-01, registering a 30 percent increase as compared with Rs.5,35,602 crore in 1999-2000. This reflects increasing depth in the Government securities market. The deepening of the market was attributable to several factors such as generally stable call rates, favorable market expectations, more active trading by the new PDs, mutual funds and some traditional participants like banks and LIC and active open market operations by Reserve Bank. During 2000-01, the total outright transactions amounted to Rs.5,69,174 crore or 82 percent of the aggregate transactions and the balance of Rs.1,25,961 crore or 18 percent by way of repos. In respect of state governments it increased from Rs.75 crore to Rs.2,986 crore during the same period.

In the 1940s and 1950s the market was characterized by poor public response to the government issues. Issues where kept open for a long time and the public subscription always fell short of the required amount. But this has changed, as the absorptive capacity of the market being very high, the government issues were oversubscribed. This trend continued almost every year till the beginning of the nineties. The state governments, securities were oversubscribed than the central government, which indicates the marketability and popularity of the state government securities over the central government securities. 

Sometimes it is questioned whether the improvement in the G-Sec market is authentic or it is due to the support of the Central Bank. Earlier the RBI used to subscribe to a substantial part of the issues by the government. But in the recent years the share of RBI in the government securities has witnessed a decline.

Some important conclusions that can be drawn from the trends of the government securities market are given below:

• The government resorted to higher and higher loans every year and could not retire the issues as prescribed.
• There is a change in the method used to refund the securities. Previously new securities were given on the maturity of old securities but now the cash received from the sale of the issues is being utilized to retire the securities.
• Because of the rise in the cash needs, the government is increasingly focusing on the cash subscriptions.