India's Finance Minister Nirmala Sitharaman.
Credit: Reuters Photo
Mumbai: The Indian government has lowered its planned gross market borrowing by 120 thousand crore rupees ($1.44 billion) for the financial year ending March 2025, Finance Minister Nirmala Sitharaman announced in the federal budget on Tuesday.
The government aims to borrow a gross of Rs 14.01 trillion (Rs 14,01,000 crore) down from Rs 14.13 trillion (Rs 14,13,000 crore) announced at the time of the interim budget in February.
In the previous financial year, the government borrowed Rs 15.43 trillion (15,43,000 crore).
It also aims to reduce its fiscal deficit to 4.9 per cent of gross domestic product (GDP), down from 5.1Per cent in interim budget.
Why it's important?
Government borrowings are one of the key drivers for bond yields, which have fallen since the start of this financial year.
India's government finances have also come into sharper focus this year as local currency bonds have been included in JPMorgan's emerging market debt index.
Foreigners bought $8 billion (Rs 66,959 crore) worth of bonds on a net basis in 2024, and the outlook on government finances is being watched keenly by offshore investors.
Market Reaction
Government bond yields eased briefly, with the benchmark 10-year bond yield easing to 6.9260 per cent , lowest since April 2022.
However, yields reversed immediately as cut in borrowing was below what many market participants were anticipating.
The benchmark bond yield was at 6.9723 per cent, against 6.9633 per cent previous close.
Key Quotes
We aim to reach fiscal deficit below 4.5 per cent next year. From 2026-27 onwards, our endeavor will be to keep fiscal deficit such that central government debt as a percentage of GDP will be on a declining path, Finance Minister Nirmala Sitharaman said.
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"There is some position adjustment as a kneejerk reaction as some investors were expecting a larger cut. Overall budget is positive with priority given to fiscal prudence. I expect benchmark bond yield to ease to 6.90 per cent, with an upside cap of 7.00 per cent," said VRC Reddy, treasury head at Karur Vysya Bank.
"The long-end yields may see some selling pressure, while short-term yields could ease. Still, the benchmark bond yield is likely to top at 7.02 per cent," said Vijay Sharma, senior executive vice president at PNB Gilts.
($1 = 83.6200 Indian rupees)
Union Budget 2024 LIVE | Making a record for any Finance Minister, Nirmala Sitharaman presented her 7th consecutive Union Budget on July 23, 2024 under the Modi 3.0 government. This Budget brought tax relief for the middle class, while focusing on jobs through skilling, incentivising employers. Track the latest coverage, live news, in-depth opinions, and analysis only on Deccan Herald. Also follow us on WhatsApp, LinkedIn, X, Facebook, YouTube, and Instagram.