Mumbai: Traders are expecting the Union government to cap bond sales at $34.4 billion, or Rs1.52 lakh crore, in the year starting 1 April as accelerating economic growth boosts tax revenue.
Finance minister P. Chidambaram may announce the same level of debt sales as current fiscal year in the Budget on 28 February, according to the median estimate of seven traders surveyed by Bloomberg.
The government has Rs45,876 crore of debt maturing next fiscal year.
Limiting debt sales may help curb a slump in India’s bond market this year caused by an acceleration in inflation to a two-year high.
“There is buoyancy in revenue collection,” said S.P. Prabhu, chief of fixed-income at IDBI Capital Market Services, a primary dealer in Mumbai that underwrites debt sales. “That will reduce the government’s dependence on the markets.”
The government forecasts the economy will expand 9.2% this fiscal, second only to China among the world’s 20 biggest economies, after a record 9% gain in the previous year.
The yield on the benchmark 8.07% note due January 2017 rose 4 basis points, or 0.04 percentage point, to 7.96%, according to the central bank’s trading system.
It has climbed from 7.53% on 2 January as the Reserve Bank of India ordered lenders to set aside more funds as reserves to curb inflation.
India’s key wholesale price inflation rate rose to 6.73% in the week ended 3 February, the highest since 11 December 2004. Prime Minister Manmohan Singh is aiming to achieve growth of as much as 10% by improving roads and airports.
“Growth in the economy will give power to the government to loosen its purse for spending,” said Indranil Pan, an economist at Kotak Mahindra Bank Ltd in Mumbai. “We expect the debt sale to be consistent with last year”
India has Rs14 lakh crore of rupee-denominated government bonds outstanding, according to data compiled by Bloomberg.
The government will sell two tranches of bonds worth Rs8,000 crore between 2-9 March, rounding off the Rs1.52 lakh crore of debt sales scheduled for the year, RBI’s calendar shows.
Regulatory discipline may help the government meet its target of reducing the Budget deficit.
Under the Fiscal Responsibility and Budget Maintenance (FRBM) Act, put in place in 2004, the government has to cut the deficit by 0.3 percentage point every year till 2009. Standard & Poor’s raised India’s debt rating to investment grade on 30 January.
India’s total indirect tax collections in the nine months ended 31 December rose 22.4% from a year earlier, the finance ministry said on 12 February.
Indian Railways, the state-run railroad operator, said this week freight revenue rose 16.6% in the 10 months ended 31 January from a year earlier.
“The government today is in a better position to maintain the FRBM Act’s targets than ever before,” IDBI’s Prabhu said. “Revenue collections will give them a lot more headroom to further improve the finances.”
Chidambaram said in January the government’s Budget deficit will shrink to 3.8% of gross domestic product in the year to 31 March, the narrowest in a quarter century, from 4.1% in the previous financial year. It may decline to 3.3% next year, Prabhu said.