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Informist, Tuesday, Jul 23, 2024

--BUDGET: Net mkt borrow 11.63 trln rupees FY25

--CONTEXT: Interim Budget pegged FY25 net mkt borrow 11.75 trln rupees 

--BUDGET: Gross mkt borrow 14.01 trln rupees FY25

--CONTEXT: Interim Budget pegged FY25 gross mkt borrow 14.13 trln rupee

--BUDGET: FY25 gilt repayments pegged at 2.38 trln rupees 

--CONTEXT:FY25 repayments net of 1.24-trln-rupee recovery from GST fund

--BUDGET: FY25 drawdown on cash seen at 1.40 trln rupees

--CONTEXT: Interim Budget pegged FY25 cash drawdown 35 bln rupees

--BUDGET: FY25 net sovereign gold bond receipts seen at 150 bln rupees 

--CONTEXT: Interim Budget saw FY25 net gold bond receipts 261 bln rupee

--BUDGET: FY25 gilt switches pegged at 1.50 trln rupees 

--CONTEXT: Interim Budget saw FY25 gilt switches at 1.00 trln rupees

--BUDGET: FY25 net short-term borrowing pegged at (-)500 bln rupees

--CONTEXT: Interim Budget saw FY25 net short-term borrow 500 bln rupees

NEW DELHI – The government will borrow 14.01 trln rupees through the sale of dated securities on a gross basis in 2024-25 (Apr-Mar), lower than the Interim Budget's target of 14.13 trln rupees. In 2023-24, the government completed a record gross borrowing of 15.43 trln rupees.

On a net basis, the government will sell bonds worth 11.63 trln rupees, taking into account repayments of 2.38 trln rupees, according to the Budget for 2024-25, presented by Finance Minister Nirmala Sitharaman in the Lok Sabha today. In the Interim Budget, the net market borrowing was pegged at 11.75 trln rupees. In a footnote to the Budget document, the government said that the gilt repayment for 2024-25 is net of recovery of 1.24 trln rupees from the GST compensation fund, retaining the guidance given in the Interim Budget. The repayments also included buybacks of bonds conducted earlier in the financial year, according to another footnote.

In a General Election year, the incumbent government presents an Interim Budget in Parliament. Prime Minister Narendra Modi's government presented the Interim Budget for 2024-25 on Feb 1. The government returned to power with a reduced majority in the elections. Finance Minister Nirmala Sitharaman, who retained her portfolio, presented the full Budget for 2024-25 today.

According to an Informist poll of 13 economists, fund managers, and treasury heads, the government was seen targetting a net issuance of dated securities at 11.42 trln rupees in 2024-25. After three successive years of record high borrowing programmes, the Centre was expected to announce a gross borrowing of 13.81 trln rupees through dated securities, according to a median of estimates of 17 analysts.

So far in 2024-25, the government's borrowing programme has progressed without too much trouble. It has borrowed 4.53 trln rupees through gilts this year, or 32.33% of the new budgeted target, without any devolvements at weekly bond auctions. However, the Reserve Bank of India rejected all bids at the auction of a new 10-year green bond on May 31, likely due to lack of 'greenium', dealers said. The 'greenium', or green premium, refers to pricing benefits based on the logic that investors are willing to pay extra or accept lower yields in exchange for its sustainable impact.

Another auction of the same bond, worth 60 bln rupees, is scheduled on Aug 2. If that auction also sees no issuance of the 10-year green bond, it would account for the cut in gross and net borrowing targets for the full year.

The government aims to fund 72.1% of its 16.133-trln-rupee fiscal deficit through market borrowing. In 2023-24, dated securities financed 71.4% of the fiscal deficit. In the full Budget, the government increased its reliance on its cash balances. It changed its cash drawdown budget estimate to 1.40 trln rupees from 35 bln rupees in the Interim Budget. In the previous fiscal year, the government added 1.72 trln rupees to its cash balances, according to provisional actuals.

The fiscal deficit for the financial year started April is pegged at 4.9% of GDP, down from 5.6% of GDP in the previous fiscal year. In the Interim Budget, the target for the current fiscal was set at 5.1% of GDP. Borrowing from small savings is pegged at 4.20 trln rupees in 2024-25, funding 26.0% of the deficit. This was lower than 4.66 trln rupees in the Interim Budget.

Net short-term borrowing, through the issuance of 91-day, 182-day, and 364-day T-bills, is seen at (-)500 bln rupees in the current fiscal year, a sharp downward revision from 500 bln rupees in the Interim Budget. This means the government will net redeem T-bills this year using its cash pile. The government had cut its borrowing through T-bills by 600 bln rupees for the last six weeks of the quarter ended June owing to a high cash balance. In 2023-24, the government raised net 483.49 bln rupees through T-bills, down from a budgeted 500 bln rupees. 

It also provided for issuing up to 200 bln rupees in cash management bills. This was lowered from 1 trln rupees in the Interim Budget. Meanwhile, use of ways and means advances – another item netted out within the financial year – was set at 500 bln rupees. In total, the net borrowing from all sources was reduced to 11.13 trln rupees. 

Continuing tradition since 2020-21, the government did not announce a buyback of securities in 2024-25. However, the government bought back 302.48 bln rupees worth of bonds during May and June, which did not have an impact on the fiscal deficit as the bonds were all scheduled for maturity within the current financial year. Through buyback auctions conducted over five weeks, the government bought back varying amounts of all the seven gilts maturing in 2024-25.

Meanwhile, the government aims to switch 1.50 trln rupees of bonds in the current fiscal year, higher than the Interim Budget's 1.00-trln-rupee target. A switch operation entails replacing a security maturing in the near term with a longer-maturity paper, effectively postponing the government's debt repayment to a later date.

Government bond prices in the secondary market were little changed after brief volatility during the Budget speech. While the gross borrowing cut was lower than expected, weighing on prices, traders took heart from the lower fiscal deficit target. A fiscal deficit of 4.9% of GDP, compared with 5.0% expected before the Budget, may give the government room to cut borrowing via dated securities later in the year, dealers said. Moreover, demand-supply dynamics, particularly for long-term bonds, are likely to remain favourable for the rest of the fiscal year, they said.

India's government bonds under the fully accessible route have been included on JP Morgan's Government Bond Index – Emerging Markets starting Jun 28. Bloomberg will include such bonds on its Emerging Market Local Currency Index starting Jan 31, 2025. These inclusions are expected to drive inflows worth $30 bln into government bonds, of which around $12 bln has already been invested since the JP Morgan inclusion was announced in September.

Following are key details of the government's proposed borrowing programme. All amounts in bln rupees.

End

Reported by Aaryan Khanna

Edited by Avishek Dutta

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