Informist, Thursday, Jan 19, 2023

By Shubham Rana and Aaryan Khanna

NEW DELHI - The government may peg its net issuance of dated securities at 11.68 trln rupees in 2023-24 (Apr-Mar), up 4% from the budgeted 11.19 trln rupees in the current financial year, according to an Informist poll of 18 economists, fund managers, and treasury heads.

While net borrowing is seen close to the current year’s figure, a huge repayment scheduled for next year is expected to push the gross borrowing sharply higher.

Separately, the Informist poll showed that the government is likely to eclipse the record it set in 2022-23 by announcing a borrowing programme of 15.8 trln rupees on a gross basis through dated securities, according to a median of 20 analysts. The respondents to the poll had differing estimates for the net redemption in 2023-24.

According to Reserve Bank of India data as on Jan 18, government bonds worth 4.40 trln rupees are set to mature in 2023-24 as against redemptions of 3.12 trln rupees that were due in the current year.

This would push the government's gross borrowing in the upcoming fiscal to 16.08 trln rupees, based on the net borrowing estimates. The gross amount would be sharply higher than the record high 14.21 trln rupees pegged for this financial year ending March.

The Budget for the current financial year had projected that nearly 70% of the targeted fiscal deficit of 16.61 trln rupees would be financed through market borrowing, and nearly 26% would be financed through small savings receipts of 4.25 trln rupees. The remaining 4% was to be funded through other sources, including state provident funds.

The borrowing figures will be announced as part of the Union Budget for 2023-24, which will be presented in Parliament on Feb 1. This will be the last full Budget to be presented by the government before the general elections in 2024.

"We expect government borrowing in 2023-24 to remain elevated, which will likely require the RBI to restart open market operation purchases in the second half of 2023-24 with domestic liquidity constraints easing," Goldman Sachs said in a note.

The budgeted figures for 2022-23 gross borrowing and redemptions did not take into account a gilt switch worth 636 bln rupees, which the RBI had conducted with securities from its own books on the eve of the Budget presentation. This led to a downward revision of the gross borrowing number when the government released its borrowing calendar in March.

Moreover, the government trimmed its gross borrowing target by 100 bln rupees in September, when it announced the market borrowing calendar for

Oct-Mar.

Analysts expect the government to conduct gilt switches in February and March, like last year, which would bring down its debt repayment obligation for 2023-24, but redemptions are still projected to be close to 4 trln rupees. In a switch operation, the government typically issues long-term new bonds in lieu of short-term papers set to mature, effectively postponing debt repayments.

A sharp rise in net borrowing is not expected as the government looks to cut its fiscal deficit to below 6% from 6.4% projected this year, on its way to reach the target of bringing it down to 4.5% of GDP by 2025-2026, analysts said. However, the government is expected to continue spending heavily to support growth, with an expected fall in subsidies in 2023-24 seen keeping the fiscal gap in check.

"Gradual fiscal consolidation to keep supply of government securities at elevated, but within manageable levels," HDFC Mutual Fund said in a report. "Collections in National Small Savings Fund likely to be muted as differential between term deposit rate and small savings rate has narrowed."

Some external commentators such as former finance secretary Subhash Garg are of the view that the borrowing figure could be much higher despite the consolidation in the fiscal deficit, as a percentage of GDP.

"Most likely fiscal deficit would be just shy of 6%. If you fund 75% of fiscal deficit by market borrowing, you get the net borrowing number of

12.0-13.5 trln rupees," Garg said.

At the start of the current year, bond market participants were nervous whether the government would be able to push through such a large borrowing. This fear deepened as the much-anticipated inclusion of Indian government bonds into global bond indices did not materialise. An inclusion in global bond indices would attract more investors to Indian government bonds.

However, the auctions have sailed through every week and the government is now at the end of its debt issuance for the year. This has been possible largely because of strong demand from long-term investors such as insurance companies and pension funds. The same category of investors will be expected to absorb yet another record debt supply next year, analysts said.

The following are the poll estimates for net and gross market borrowing listed in alphabetical order of respondents:

End

Edited by Vandana Hingorani

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (11) 4220-1000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2023. All rights reserved.

Informist, Thursday, Jan 19, 2023

By Shubham Rana and Aaryan Khanna

NEW DELHI - The government may peg its net issuance of dated securities at 11.68 trln rupees in 2023-24 (Apr-Mar), up 4% from the budgeted 11.19 trln rupees in the current financial year, according to an Informist poll of 18 economists, fund managers, and treasury heads.

While net borrowing is seen close to the current year’s figure, a huge repayment scheduled for next year is expected to push the gross borrowing sharply higher.

Separately, the Informist poll showed that the government is likely to eclipse the record it set in 2022-23 by announcing a borrowing programme of 15.8 trln rupees on a gross basis through dated securities, according to a median of 20 analysts. The respondents to the poll had differing estimates for the net redemption in 2023-24.

According to Reserve Bank of India data as on Jan 18, government bonds worth 4.40 trln rupees are set to mature in 2023-24 as against redemptions of 3.12 trln rupees that were due in the current year.

This would push the government's gross borrowing in the upcoming fiscal to 16.08 trln rupees, based on the net borrowing estimates. The gross amount would be sharply higher than the record high 14.21 trln rupees pegged for this financial year ending March.

The Budget for the current financial year had projected that nearly 70% of the targeted fiscal deficit of 16.61 trln rupees would be financed through market borrowing, and nearly 26% would be financed through small savings receipts of 4.25 trln rupees. The remaining 4% was to be funded through other sources, including state provident funds.

The borrowing figures will be announced as part of the Union Budget for 2023-24, which will be presented in Parliament on Feb 1. This will be the last full Budget to be presented by the government before the general elections in 2024.

"We expect government borrowing in 2023-24 to remain elevated, which will likely require the RBI to restart open market operation purchases in the second half of 2023-24 with domestic liquidity constraints easing," Goldman Sachs said in a note.

The budgeted figures for 2022-23 gross borrowing and redemptions did not take into account a gilt switch worth 636 bln rupees, which the RBI had conducted with securities from its own books on the eve of the Budget presentation. This led to a downward revision of the gross borrowing number when the government released its borrowing calendar in March.

Moreover, the government trimmed its gross borrowing target by 100 bln rupees in September, when it announced the market borrowing calendar for

Oct-Mar.

Analysts expect the government to conduct gilt switches in February and March, like last year, which would bring down its debt repayment obligation for 2023-24, but redemptions are still projected to be close to 4 trln rupees. In a switch operation, the government typically issues long-term new bonds in lieu of short-term papers set to mature, effectively postponing debt repayments.

A sharp rise in net borrowing is not expected as the government looks to cut its fiscal deficit to below 6% from 6.4% projected this year, on its way to reach the target of bringing it down to 4.5% of GDP by 2025-2026, analysts said. However, the government is expected to continue spending heavily to support growth, with an expected fall in subsidies in 2023-24 seen keeping the fiscal gap in check.

"Gradual fiscal consolidation to keep supply of government securities at elevated, but within manageable levels," HDFC Mutual Fund said in a report. "Collections in National Small Savings Fund likely to be muted as differential between term deposit rate and small savings rate has narrowed."

Some external commentators such as former finance secretary Subhash Garg are of the view that the borrowing figure could be much higher despite the consolidation in the fiscal deficit, as a percentage of GDP.

"Most likely fiscal deficit would be just shy of 6%. If you fund 75% of fiscal deficit by market borrowing, you get the net borrowing number of

12.0-13.5 trln rupees," Garg said.

At the start of the current year, bond market participants were nervous whether the government would be able to push through such a large borrowing. This fear deepened as the much-anticipated inclusion of Indian government bonds into global bond indices did not materialise. An inclusion in global bond indices would attract more investors to Indian government bonds.

However, the auctions have sailed through every week and the government is now at the end of its debt issuance for the year. This has been possible largely because of strong demand from long-term investors such as insurance companies and pension funds. The same category of investors will be expected to absorb yet another record debt supply next year, analysts said.

The following are the poll estimates for net and gross market borrowing listed in alphabetical order of respondents:

End

Edited by Vandana Hingorani

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (11) 4220-1000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2023. All rights reserved.