The central government has pegged the gross borrowing at Rs 15.4 trillion to fund its fiscal deficit of 5.9% for FY24, finance minister Nirmala Sitharaman said in her Budget speech. The overall borrowing of the government is lower than Rs 15.8 trillion estimated in a Bloomberg survey, but higher than Rs 14.2 trillion budgeted for FY23. Despite an 8.4% year-on-year rise in the government’s market borrowing for FY24, the yield on bonds declined on account of lower-than-expected numbers.
At the net level, the government borrowing is estimated at Rs 11.8 trillion in the coming financial year. The gross borrowing includes the amount of funds raised from the market and repayment on existing borrowing. The remaining funds are expected to be raised from small savings and other sources, she said.
The revised estimate of the fiscal deficit for FY23 is 6.4% of the GDP. The government is aiming at a fiscal deficit of below 4.5% of the GDP by FY26.
The estimates of receipts and expenditure presented in the Budget seem to be realistic and the government’s resolve to stick to the gliding path of fiscal deficit and to bring it down to below 4.5% of the GDP by FY26 is quite positive for the economy, AK Goel, MD & CEO, Punjab National Bank, said.
The government’s total receipts other than borrowings are pegged at Rs 27.2 trillion, with tax receipts at Rs 23.3 trillion. Total expenditure is estimated at Rs 45 trillion. The government’s market borrowing is lower than expected despite the massive increase in the capital outlay of Rs 10 trillion for FY24. The government has increased capital expenditure for the third consecutive year by 33% or 3.3% of the GDP.
“The Budget also pays heed to the need for fiscal consolidation, reducing its fiscal deficit target to 5.9% of the GDP in 2023-24 from 6.4% in 2022-23. The resultant lower-than-expected market borrowing number is likely to bring some relief for the bond market,” Abheek Barua, chief economist, HDFC Bank, said.
The market borrowing remained in line with the market expectation, which led to softening of yields on the government bonds. The yield on 10-year bonds ended 0.066 basis points lower to 7.277% on Wednesday. The yield on the benchmark government bond rose earlier in the day, during the initial part of the speech, but recovered after the prudent borrowing numbers.
The fiscal deficit and the borrowing numbers in the Budget are as per expectations and yields are down by 6-10 bps across the curve with a steepening bias, Puneet Pal of PGIM India Mutual Fund said.
The bond market has seen a relief rally in absence of any negative surprise and the 10-year benchmark bond yield is expected to trade in a range of 7.15-7.35% till March 31 and further decline to around 7-7.1% in FY24, analysts said. The bond yields were on the rise till June because of concerns over high inflation and policy rate hikes. The yields have moderated at the end of the calendar year, aided by lower crude oil prices, a slower pace of rate hikes, and a general decline in global sovereign bond yields.
“With the government’s borrowings similar to market expectations, the bond yields are likely to stabilise, which would also support the private sector capex plans,” Ramnath Krishnan, MD and group CEO, Icra, said.
The Reserve Bank of India (RBI) earlier said it will conduct the auction of a new 10-year government bond on Friday. Three securities worth Rs 28,000 crore will be auctioned, of which Rs 12,000 crore will be of the new 10-year paper, maturing in 2033.