The Centre will borrow ₹5.92 lakh crore in the second half of FY23, which is ₹10,000 crore lower than intended, according to an official statement. The second-half borrowing will include the first-ever green bonds, worth ₹16,000 crore.
“Buoyant revenues may be able to absorb a large portion of the higher-than-budgeted expenditure, which appears to have restricted the size of the H2 FY23 borrowing programme,” said Aditi Nayar, chief economist, ICRA.
The government had pegged gross market borrowing through dated securities for FY23 in the budget at ₹14.95 lakh crore. After switch operations on January 28, 2022, this was lowered to ₹14.31 lakh crore, and now to ₹14.21 lakh crore.
The reduction will also calm concerns over possible crowding out of private sector borrowing and a sharp increase in loan rates amid a strong rise in credit demand in the past few months on the back of economic recovery. The benchmark 10-year government bond yield was almost unchanged at 7.3405% on Thursday against 7.3340% on Wednesday. “Yields are likely to take a cue from the tone and outlook portrayed by the monetary policy committee’s statement on Friday, especially cues regarding how much further monetary tightening lies ahead,” Nayar said.
Fiscal Math
Bank of Baroda chief economist Madan Sabnavis said yields will be driven by the liquidity situation in the short term. In the long term, they will be driven by the repo rate and progress on the inclusion of India bonds in global indices, he said.
The government has budgeted a fiscal deficit of 6.4% of GDP in FY23.
The Centre could raise Rs 10,000 crore from other sources such as small savings, a government official said, adding that additional expenditure would be financed through higher tax revenues and savings by some ministries. The government is facing a substantial increase in the food and fertiliser subsidy bill, which has been pegged at Rs 3.12 lakh crore for FY23. The fertiliser subsidy bill for FY23 alone is expected to be around Rs 2.3 lakh, on account of higher international prices. The food subsidy bill is likely to jump to Rs 3.84 lakh crore as against the Rs 2.07 budgeted for this fiscal year after another three-month extension of the free food grain scheme was announced on Wednesday.
Higher tax collections are seen absorbing most of this additional spending. Direct and indirect tax collections have grown by about 30% in the first half and are expected to exceed budgeted estimates.
Borrowing Schedule
The finance ministry said the RBI will separately announce details of the sovereign green bonds later. The gross market borrowing will be completed through 20 weekly auctions, spread over securities with tenors of two, five, seven, 10, 14, 30 and 40 years.
The government will continue to exercise the greenshoe option to retain an additional subscription of up to Rs 2,000 crore against each of the securities indicated in the auction notification, it said.
The Centre will also issue treasury bills worth Rs 22,000 crore every week in the third quarter of FY23, amounting to a borrowing of Rs 2.86 lakh crore.
To take care of temporary mismatches in government accounts, the RBI has fixed the ways and mean advances (WMA) limit for the second half at Rs 50,000 crore, it said.
