The Center will borrow ₹5.92 lakh crore in the second half of FY23, which is ₹10,000 crore less than planned, 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 much of the higher-than-expected spending, which appears to have limited the size of the borrowing program in H2 FY23,” 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 the changeover operations on January 28, 2022, this amount was lowered to ₹14.31 lakh crore, and now to ₹14.21 lakh crore.
The cut will also calm concerns about a potential crowding out of private sector borrowing and a sharp rise in lending rates amid a surge in credit demand in recent months amid an economic recovery. The yield on benchmark 10-year government bonds was virtually unchanged at 7.3405% on Thursday from 7.3340% on Wednesday. “Returns are likely to build on the tone and outlook portrayed by the monetary policy committee statement on Friday, particularly hints regarding the extent of monetary tightening to come,” Nayar said.
Bank of Baroda chief economist Madan Sabnavis said returns would depend on the near-term liquidity situation. In the long term, they will be driven by the repo rate and progress on including Indian bonds in global indices, he said.
The government has projected a budget deficit of 6.4 percent of GDP for FY23.
The Center could raise Rs 10,000 crore from other sources such as small savings, a government official said, adding that the additional expenditure would be funded by higher tax revenue and savings by some ministries. The government is facing a substantial increase in the food subsidy and fertilizer bill, which has been pegged at Rs 3.12 lakh crore for FY23. The fertilizer subsidy bill for FY23 alone is expected to be d around Rs 2.3 lakh, due to rising international prices. The food subsidy bill is expected to climb to Rs 3.84 lakh crore from the Rs 2.07 budgeted for this financial year after another three-month extension of the free food grain scheme was announced on Wednesday.
It is considered that the increase in tax revenues absorbs the major part of these additional expenditures. Direct and indirect tax revenues increased by around 30% in the first half and are expected to exceed budget estimates.
The Ministry of Finance said the RBI will separately announce the details of the sovereign green bonds later. The gross borrowing on the market will be supplemented by 20 weekly auctions, spread over securities with terms of two, five, seven, 10, 14, 30 and 40 years.
The government will continue to exercise the green shoe option to retain an additional subscription of up to Rs 2,000 crore against each of the securities listed in the auction notification, it said.
The Center will also issue treasury bills worth Rs 22,000 crore every week during the third quarter of FY23, borrowing Rs 2.86 lakh crore.
To address the temporary mismatches in the government accounts, the RBI has set the limit for medium and medium advances (WMA) for the second half of the year at Rs 50,000 crore, he said.