The government is not expected to exceed its borrowing target for the current financial year, as the Centre aims to adhere to its fiscal consolidation path, according to bond market participants.
The central government has planned a borrowing of Rs 15.43 trillion (gross) for the current financial year, with Rs 6.6 trillion of this total expected in the second half.
Market participants suggest that the central government’s borrowing plan for the upcoming financial year is unlikely to be significantly higher than this year’s. Despite India’s economic growth, the government may limit its expenditure to meet its fiscal consolidation goal.
“We do not anticipate an increase in the H2 (second half of the current financial year) borrowing calendar for FY23-24. For FY24-25, we estimate gross borrowings at around Rs 15 trillion,” stated Aditi Nayar, chief economist at ICRA.
Analysts predict the government might reduce the fiscal deficit target by about 50 to 60 basis points for the upcoming financial year. The aim to achieve a fiscal deficit of 4.5 per cent of Gross Domestic Product (GDP) by 2025-26 implies a decrease of 140 basis points from this year’s target of 5.9 per cent of GDP.
“We expect the central government to comfortably meet its fiscal deficit target of 5.9 per cent of GDP for FY23-24 and anticipate a deficit target of 5.3 per cent of GDP in the FY24-25 Budget,” commented Rahul Bajoria, MD & Head of EM Asia (ex-China) Economics at Barclays.
India’s fiscal deficit, the difference between the government’s income and expenditure, peaked at 9.2 per cent of GDP in 2020-21 due to Coronavirus disruptions. It improved to 6.8 per cent of GDP in 2021-22 and declined further to 6.5 per cent of GDP in 2022-23. The government aims to reduce it to 5.9 per cent of GDP in the ongoing financial year.
“The government is expected to adhere to the target this year, and they may start reducing their borrowing from the next financial year,” said Venkatakrishnan Srinivasan, a bond market veteran and managing partner at Rockfort Fincap LLP.
The current quarter poses challenges for the bond market due to the high volume of state bonds. Despite additional tax devolution to states in December 2023, the projected borrowing by states for Q4 FY2024 is notably high at Rs 4.1 trillion. Some states may have indicated borrowing amounts that exceed their actual requirements. Notably, two states alone have signalled a combined issuance of approximately Rs 1.2 trillion in Q4 FY2024.
Govt borrowing in the last five years
|
Gross |
Net |
||
Rs. trn |
BE |
Actual |
BE |
Actual |
FY2019 |
6.1 |
5.7 |
4.6 |
4.2 |
FY2020 |
7.1 |
7.1 |
4.7 |
4.7 |
FY2021 |
7.8 |
13.7 |
5.4 |
11.4 |
FY2022 |
12.1 |
11.3 |
9.2 |
8.6 |
FY2023 |
15 |
14.2 |
11.2 |
11.1 |
Source: ICRA
First Published: Jan 14 2024 | 1:59 PM IST