Union Budget 2025 | FAQs: What are Treasury Bills?

The Union Budget will be presented on February 1 by Finance Minister Nirmala Sitharaman. As the nation gears up for it, let us take a look at what are Treasury Bills.

Treasury Bills (T-Bills) are a significant component in the context of India's Budget, as they play a crucial role in the government's fiscal management and monetary policy. T-Bills are short-term debt instruments issued by the Government of India to meet its immediate financial needs.

Their role and impact on India's Budget and economy can be understood in several key aspects.

Government financing: T-Bills are primarily used by the Indian government to bridge short-term mismatches between its revenues and expenditures. The government raises funds by selling these bills to investors, including banks, financial institutions, and individuals. The money raised is used to finance government projects, manage cash flow, and meet other short-term financial obligations.

Short-term nature: T-Bills are typically issued for shorter durations, such as 91 days, 182 days, or 364 days. Unlike long-term government bonds, they do not pay interest but are issued at a discount to their face value. Investors earn a return when the T-Bills mature at their face value. This short-term nature makes T-Bills a highly liquid and low-risk investment.

Monetary policy tool: The Reserve Bank of India (RBI), which conducts the auction of T-Bills on behalf of the Government of India, uses them as an instrument to manage liquidity in the economy. By regulating the supply of T-Bills, the RBI can influence short-term interest rates and control money supply, which is crucial for inflation management and economic stability.

Indicator of economic health: The demand and yield (interest rate) of T-Bills are indicators of the market's perception of India's economic health and creditworthiness. Lower yields generally indicate a higher level of confidence in the government’s fiscal position and economic stability, while higher yields may suggest increased risk or uncertainty.

Fiscal deficit financing: In India's budget, the role of T-Bills is closely linked to the fiscal deficit—the difference between the government's total expenditure and its total revenue. When revenues fall short, the government may issue T-Bills to cover the deficit, making them a crucial tool for fiscal management.

In summary, Treasury Bills are an essential instrument in India's financial arsenal, used for managing short-term liquidity, financing government expenditures, conducting monetary policy, and signaling the health of the economy. Their management reflects the government's approach to fiscal discipline and economic policy, impacting various aspects of India's economy and financial markets.

(Disclaimer: This copy has been written by a generative AI tool and has been reviewed and edited by the DH Web Desk)