Despite the scope to lower market borrowing a bit in H2FY24, the government decided to stick with the Budget plan to keep the “firepower” intact should it be required, a senior government source said.
The Union government on Tuesday announced gross market borrowing target of Rs 6.55 trillion for the second half of the current fiscal, same as outlined earlier. There were expectations that the Centre might lower its market borrowings in H2FY24 and rely more on a burgeoning small savings kitty to finance the budgeted fiscal deficit.
“It offers flexibility if more small savings flow in. We have not reached half of the financial year, so, let’s see how it pans out,” the source said, indicating that a call may be taken on adjusting market borrowings accordingly if collections are more than estimated.
In the FY24 Budget, the government has budgeted offtake from the NSSF to rise from Rs 3.96 trillion in FY23 to Rs 4.71 trillion in FY24. The Centre is virtually the sole user of the NSSF deposits to finance the fiscal deficit, as states no longer tap this resource. “We are retaining the firepower within the overall fiscal numbers presented in the budget,” the source added.
While gross market borrowing is Rs 6.55 trillion in H2FY24, net borrowing during that period will be Rs 3.74 trillion. The 10-year G-sec yield ended up at 7.17%, after closing at 7.14% in the previous session.
Despite a likely shortfall in disinvestment receipts, the Centre’s tax and non-tax revenues are on track at the aggregate level to meet the FY24 target. While overall spending is progressing as per plan, the capex has reached around 40% of the annual target of Rs 10 trillion, by early September.
Given that there will be half a dozen state elections in November-December and general elections in April-May, officials fear some additional spending on welfare and development than budgeted.
While the government is committed to the fiscal deficit target of 5.9% of GDP in FY24 even if there is some change in absolute spending and fiscal deficit numbers depending on the scope available due to nominal GDP size or actual revenue receipts, another source said.
An amount of Rs 20,000 crore will be raised via sovereign green bonds as against the budget estimate Rs 23,765 crore. In FY23, the government raised Rs 16,000 crore through these bonds for the first time.
“We expect greenium to be much higher than seen in the previous tranches,” the first source said.
The cut-off yield on the green bonds — 5-year and 10-year papers — was 2 to 4 bps lower than traditional G-Secs of comparable maturity in the second tranche of Rs 8,000 crore on February 9, 2023.
The government was not happy with the outcome as it wanted a higher ‘greenium’ or cost advantage to the issuer compared to conventional bonds.