New Delhi: The central government plans to borrow a gross ₹14.13 trillion from the bond markets in 2024-25 to finance its fiscal deficit, according to the interim budget for FY25 presented in parliament on Thursday.
The government, which reiterated its commitment to a continued fiscal consolidation, has set a fiscal deficit target of 5.1% of GDP for FY25.
On a net level, which strips out repayments of past loans, the Centre would borrow ₹11.75 trillion.
“The surprise lower fiscal deficit target for FY25 at 5.1% of GDP in India will lead to a positive initial reaction in the bond market, with bond yields potentially decreasing. This unexpected development may create a short-term rally. The impact on corporate bonds would likely depend on how bond traders interpret and also based on system liquidity,” said Venkatakrishnan Srinivasan, managing partner at Rockfort Fincap Llp, a financial advisory firm.
The gross borrowing target for FY25 is lower than the FY24 budget estimate of ₹15.43 trillion. In response, the 10-year benchmark government bond yield dropped to 7.04%, from 7.14% on Wednesday, although concerns persist the government could announce a higher borrowing target in the full budget for the next fiscal year, after the general elections likely in April-May.
Fiscal deficit is the difference between the government’s income and expenditure.
A higher fiscal deficit leads to a greater debt burden and more spending on debt servicing, which can hurt the economy and risk devaluing the currency while crowding out private investments.
In her budget speech, finance minister Nirmala Sitharaman announced the FY24 revised estimates for total receipts stand at ₹27.56 trillion, and expenditure at ₹44.90 trillion.
The FY24 budget had estimated total receipts at ₹27.16 trillion, and expenditure at ₹45.03 trillion.
The budget estimates for FY25 peg total receipts at ₹30.80 trillion, and total expenditure at ₹47.66 trillion.
Helped by larger revenues from asset sales and dividends, and combined with lower market borrowings, the government is likely to meet the FY25 fiscal deficit target of 5.1% of GDP, lower than a revised 5.8% for FY24.
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Published: 01 Feb 2024, 02:36 PM IST