In an indication the government would significantly enhance its borrowing requirements in the Union Budget 2009-10; the Centre has borrowed Rs 9,000 crore more than it was scheduled to borrow in June.
The government raised its market borrowings to Rs 15,000 crore from the planned Rs 12,000 crore in each of the three bond auctions in June. While two of these bond auctions have been completed, the third will be conducted on Friday. Market participants expect the government to raise its borrowing needs by Rs 50,000-60,000 crore. The government had estimated to borrow Rs 3.62 lakh crore in 2009-10 in the interim budget that was presented this February. This will be revised when finance minister Pranab Mukherjee tables the full budget in Parliament on July 6. The yield on the five-year bond ended at 6.65% on Monday, little changed from Friday?s close of 6.64%, as the market sought clarity on the government?s borrowing programme. The benchmark 10-year government bond was not actively traded on Monday. Expectations that the government debt programme will swell further is expected to keep the bond market bearish, meaning the yields will not fall much. Since yield and bond price move in opposite direction, higher yields lower the price of bonds, making them less attractive.
?The bearish trends in the bond markets are on the basis of consistently high supplies of government papers and the market would be critically watching for borrowing numbers in the new Budget that would be tabled on July 6, 2009. We expect the government to build in around Rs 50,000 crore to Rs 60,000 crore of more borrowings in the rest of the FY, over and above that announced in the Interim Budget,? Kotak Mahindra Bank said in a note.
The government will borrow higher amount was also indicated by Planning Commission deputy chairman Montek Singh Ahluwalia who said advancing investment would aid economic recovery. ?What we want to do at present is advance investment as much as possible so we can do more this year and may be next year, and then as economy recovers, we can do less. The idea is to anticipate the investment that otherwise would have taken place a bit later,? Ahluwalia said. ?This means the fiscal deficit would be higher in the short term, but would be lower in the future because we will be only redistributing the expenditure. If we could actually increase expenditure it would be wonderful but we do have overall limits?, he said. Market widely believes the fiscal deficit as a proportion of GDP will be announced at around 6.5%, higher than 5.5% of the interim budget, Kotak Mahindra Bank said.
Falling tax revenue would expectedly add to the deficit numbers. As per the interim budget estimates for 2009-10, the Centre?s net tax revenue is estimated at Rs 4,97,596 crore, 6.7% higher than the revised estimate of Rs 4,65,970 crore for 2009-10. However, as the result of the economic downturn, it is significantly lower than the Rs 5,07,150 crore target for net tax collections in the BE of 2008-09. In the first two months of this fiscal, direct tax collections grew 5.77% to Rs 24,158 crore. Advance tax receipts till June 15, 2009 are expected to grow at a flat rate to Rs 23,000 crore.