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Informist, Friday, Jul 19, 2024

By Aaryan Khanna

NEW DELHI – The government may peg its net issuance of dated securities at 11.42 trln rupees in the full Budget for 2024-25 (Apr-Mar), down from the Interim Budget's aim of 11.75 trln rupees, according to an Informist poll of 13 economists, analysts and treasury heads. In the financial year ended March, the government had raised 11.80 trln rupees through dated securities, on a net basis.

The moderation in net market borrowing will pull down gross borrowing as well. According to a median of estimates of 17 analysts, the Centre is likely to announce a gross borrowing of 13.81 trln rupees through dated securities for the current financial year, against the 14.13 trln rupees estimated in the Interim Budget. This will be sharply lower than the record 15.43 trln rupees last year.

In a General Election year, the incumbent government presents an Interim Budget in Parliament. The National Democratic Alliance government under Prime Minister Narendra Modi had presented the Interim Budget for 2024-25 on Feb 1, and returned to power with a reduced majority in the elections. Finance Minister Nirmala Sitharaman will present the full Budget for 2024-25 on Tuesday.

The government has enough financial space to cut its reliance on borrowing for the current year, thanks to the higher-than-budgeted surplus transfer of 2.11 trln rupees by the Reserve Bank of India. Not only the RBI, record profits from state-owned banks and enterprises have led the government's kitty to swell. The Interim Budget for 2024-25 had pegged the government's income from the central bank's surplus and dividend of state-owned banks and financial institutions at 1.02 trln rupees.

"The unusually high growth in non-tax revenue... is due to higher RBI and public sector enterprises dividends," India Ratings said in a note. The ratings agency, which also expects an increase in tax receipts, has the lowest estimate of net market borrowing estimate at 11.20 trln rupees.

Others are less sanguine on borrowing cuts. Political pressures from a reduced mandate are likely to lead the government to increase focus on job creation through labour-intensive manufacturing, and boost domestic food supply chain and inventory management to control price volatility. 

Goldman Sachs made the case that the government should spend more on such schemes, instead of more aggressive consolidation. In an Informist poll published Thursday, economists had projected the fiscal deficit as a percentage of GDP to be pegged at 5.0% in the full Budget from 5.1% in the Interim Budget.

"Our fiscal impulse calculations also show that general government fiscal policy has been a drag on growth since FY22 (2021-22) and will remain so in FY25 (2024-25) and FY26 (2025-26) given the fiscal consolidation target of the central government," Goldman Sachs said.

While agreeing with Goldman Sachs that the full Budget may retain the gross dated securities borrowing aim of 14.13 trln rupees, analysts from DBS said a gross borrowing cut could wait until later in the year, once the government was sure of its finances. It may choose to reduce its issuance when detailing the borrowing calendar for the second half of the fiscal year in September, the Singapore-based lender's research team said in a note.

A more middle of the road situation is what the median projection shows, which also matches expectations from the government bond market. Anticipating a borrowing cut between 200-300 bln rupees, bond traders have been quick to pile into government bonds across tenures. The 10- and 40-year benchmark gilts, which have the highest issuances in the Apr-Sep borrowing calendar, have been favourites in this rush to secure bonds before yields fall – hampering returns for investors – and prices rise.

In addition to a smaller borrowing cut in dated securities, QuantEco Research and Emkay Securities expect the government to trim its net borrowing through short-term securities.

"While we expect T-bill borrowing to get scaled up in Oct-Mar, it is nevertheless likely to be lower than interim budget estimates by 300 bln rupees," QuantEco said in a note. "In addition, we also see the possibility of G-sec borrowing getting pruned by 300 bln rupees."

The net borrowing through Treasury bill issuance was pegged at 500 bln rupees in the Interim Budget, down from 1.34 trln rupees raised in 2023-24. In Apr-Jun, the government reduced its T-bill issuance by 600 bln rupees because it had a high cash balance, accrued due to spending restrictions amid the General Election and the RBI surplus transfer.

The following are the estimates for the government's net and gross market borrowing listed in alphabetical order of respondents' names:

End

Edited by Deepshikha Bhardwaj

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