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Informist, Tuesday, Oct. 22, 2024

 

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--Govt sources: May cut FY25 mkt borrow if geopolitical risks don't escalate
--Govt sources: May cut FY25 borrowing if spending pace doesn't normalise
--Govt sources: May not need INR 11.6-tln net borrow to fund FY25 fisc gap 
--Govt sources: No point in borrowing as per budget aim if capex stays slow
--Govt sources: Very confident of meeting FY25 fiscal deficit target of 4.9%
--Govt sources: Too early to say if FY25 fiscal deficit could be under 4.9%

By Krity Ambey, Priyasmita Dutta, and Sagar Sen

 

NEW DELHI – The government may consider cutting its market borrowing for 2024-25 (Apr-Mar) provided its expenditure continues to lag and geopolitical tensions do not hurt its finances, according to two finance ministry officials, with one of them noting that the Centre's fiscal position is "too comfortable" to warrant bond issuances of INR 6.61 trillion in Oct-Mar.

 

"We may not need that much to finance the deficit. In fact, there was scope to cut the borrowing for H2 (Oct-Mar), but we wanted to stick to Budget estimates for now," the official told Informist on the condition of anonymity.

 

On Sept. 26, the finance ministry said it would stick to its full-year gross market borrowing figure of INR 14.01 trillion even though the fiscal deficit for Apr-Jul stood at just 17.2% of the FY25 target. Data released since then shows this figure to have risen to 27.0% for the first five months of the financial year, well below 36.0% for the same period last year. The strong financial position of the Indian government has also allowed it to repurchase bonds maturing in FY26, the official said. So far in October, the Centre has bought back bonds worth INR 494 billion maturing next year, in effect repaying its debt prematurely even though the Budget had not provided for these.

 

According to the two finance ministry officials, there is a case to revisit the borrowing numbers later in the year, given the surplus cash that has been accumulated due to robust revenue growth and modest pace of expenditure so far this year, with the government more than confident of meeting its fiscal deficit target of 4.9% of GDP. In fact, it may be possible to lower the deficit even further, although the officials said it was too soon to be sure.

 

The government did not cut its borrowing for the second half of the year due to external uncertainties, the second official said. A flare-up in geopolitical tensions in West Asia could make commodity prices volatile and necessitate government action to ease risks to the Indian economy. Such measures, the official added, could hurt revenue and raise the government's expenditure.

 

Geopolitical tensions in West Asia have escalated since late September, with Israel last week killing Hamas leader Yahya Sinwar, the man behind the Oct. 7, 2023 attack.

 

The Centre's finances had come under considerable pressure following Russia’s invasion of Ukraine in February 2022. As global energy prices surged due to supply disruptions, the government increased its fertiliser subsidy payments sharply in FY23 by more than 60% to cushion the impact on local prices, resulting in the fiscal deficit exceeding the budget target by INR 766 billion.

 

SLOW SPENDING

The other factor key to the Indian government's borrowing will be its ability to spend. Expenditure, especially on investments, kicked off slowly this year due to the imposition of the Model Code of Conduct in April and May on account of the Lok Sabha elections. Spending was expected to rise from June after the formation of the new government, but heavy rains that lasted till September have proven to be an obstacle, the second official said.

 

"The expenditure has been slow this year, which added to the cash surplus. But it is expected to pick up in the coming months," the first official said.

 

While the Centre's revenue in Apr-Aug was up 18.3% on year, its expenditure was down 1.2% and capital expenditure down a massive 19.5%, as per latest available data.

 

As per the second official, the government will press the pedal on capital expenditure in the coming months to make up for the setback seen during the election months. "But if it remains slow, there is no point in borrowing unnecessarily," the official said.

 

To meet its FY25 Budget estimate for capex, the Centre must invest at least INR 1.16 trillion every month starting September. In its entire history, the Centre has spent so much on capex in only four months.

 

To be sure, Finance Minister Nirmala Sitharaman has held meetings with various departments and ministries since September to review their capital spending. So far, she has met officials from the railway, housing and urban affairs, and road transport and highways ministries.  End

 

Edited by Avishek Dutta

 

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