BackGovt lowers borrowing target for FY23 despite higher spending pressure
This comes at a time when the government is facing rising fiscal costs amid extension of free foodgrain scheme, dearness allowance hike, and higher fertilizer subsidy outgo
Premium BENGLAURU : Backed by buoyant revenue collections, the government has decided to lower borrowing for the current fiscal by ₹10000 crore than earlier projected for 2022-23 in the budget. This comes at a time when the government is facing rising fiscal costs amid extension of free foodgrain scheme, dearness allowance hike, and higher fertilizer subsidy outgo.
According to economists, the move signals that the government is confident of achieving the fiscal deficit target for 2022-23 of 6.4% of GDP.
The government has now decided to borrow ₹14.21 trillion in the current fiscal, as against ₹14.31 trillion estimated in the budget. However, the borrowing for the second half will remain the same as earlier estimated at ₹5.92 trillion, which includes ₹16000 crore of its sovereign green bond offering.
There will also be ₹22,000 crore of Treasury Bills auctions on a weekly basis.
“Out of the Gross Market borrowing of ₹14.31 trillion projected for FY 2022-23, the Government of India has decided to borrow ₹14.21 lakh crore... Accordingly, the balance amount of ₹ 5.92 lakh crore (41.7% of ₹14.21 lakh crore) is planned to be borrowed in the second half of the fiscal year 2022-23) through dated securities, including ₹16,000 crore through issuance of Sovereign Green Bonds (SGrBs) as per the announcement made in the Union Budget 2022-23," the ministry of finance said in a release on Thursday.
The government finances its fiscal deficit through several means, including raising money from capital markets by issuing different instruments like treasury bills and bonds. Fiscal deficit, which is the excess of government spending over revenues is estimated at ₹16.6 trillion, or 6.4% of GDP.
“The government borrowing programme…for the second half…is in line with the Budget projections. This means that the government expects fiscal deficit to be contained," said Madan Sabnavis, chief economist, Bank of Baroda. He added that even if there is a slippage, it will be made up by other sources like cash balances or National Savings Scheme and not market borrowings.
The government on Wednesday announced the extension of Pradhan Mantri Garib Kalyan Anna Yojana for three more months, under which the government extends 5 kg free foodgrains to 80 crore beneficiaries every month. That will cost the exchequer an additional ₹44762 crore, taking the total food subsidy bill this year to ₹3.2 trillion as against ₹2.06 trillion estimated in the budget. The fertilizer subsidies are expected to touch ₹2.5 trillion in the current fiscal, as against ₹1.05 trillion allocated in the budget due to the impact of high global prices and sharp depreciation in rupee.
The Union Cabinet on Wednesday also approved the release of additional 4% dearness allowance fora central government employees and dearness relief for pensioners with effect from 1 July. This is expected to cost the government an additional ₹8468 crore in the remaining eight months of the current fiscal.
“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 program," Aditi Nayar, chief economist, ICRA Ltd said.
Devendra Kumar Pant, chief economist, India Ratings and Research said that although revenue collections this year are expected to be higher than budget estimates, the second half borrowing will give government cushion for higher expenditure on fertiliser subsidy, capex etc. "It is unlikely to be disruptive for bond market. However, bond market will respond to domestic and global liquidity, inflation and monetary conditions," said Pant.
The direct tax collections in the first six months of the fiscal are higher 23% over the corresponding period last year at ₹700,669 crore. The total includes corporation tax of ₹3.68 trillion and personal income tax worth ₹3.3 trillion.
The gross market borrowing of ₹5.76 trillion shall be completed through 20 weekly auctions. The market borrowing will be spread over 2, 5, 7, 10, 14, 30 and 40 years securities. The government will announce the issuance of sovereign green bonds separately.
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