Finance ministry sees G-sec yields on downhill trek

The bond market traders keenly watch the government’s fiscal deficit target and market borrowing plans in the Union Budget for directional cues. The trajectory of Indian government bond yields will be influenced by the Budget targets and the upcoming US Federal Reserve policy meeting.

The government on Tuesday said it will borrow Rs 6.55 lakh crore in the second half of 2023-24 through dated securities, including Rs 20,000 crore through issuance of Sovereign Green Bonds (SGrBs). The government meets its fiscal deficit mainly through market borrowings.

The central government contained its fiscal deficit in the 2023-24 financial year at 63.6% of the revised target despite a moderation in nominal GDP growth. The deficit dropped 7.3% from a year ago period to ₹11.03 lakh crore. Revenue spending moderated while capital spending remained lower than the revised target.

Despite being an election year where Prime Minister Narendra Modi is bidding for a rare third straight term in power, the government is likely to rein in its fiscal deficit by at least 50 basis points by capping its spending on welfare schemes and subsidies.

The issuance of sovereign green bonds would be announced in the second half of FY24. The government has already borrowed ₹16,000 crore through such bonds this fiscal year.The borrowing in the first half is scheduled to be over in 26 weekly tranches of ₹31,000-39,000 crore, the finance ministry said on Wednesday.

The Indian government plans to borrow ₹6.55 lakh crore in the second half of the financial year, remaining on track with its budget estimate. The borrowing will include a new 50-year security for the first time, and ₹20,000 crore will be raised through sovereign green bonds. Analysts believe this adherence to borrowing plans demonstrates fiscal prudence and should calm market nerves.

In the interim Budget for FY25, the government has pegged the gross and net market borrowing at Rs 14.13 lakh crore and Rs 11.75 lakh crore, respectively. Most experts had pegged the gross market borrowing to be a little over Rs 15 lakh crore. The planned borrowing for FY25 is less than that in FY24. For FY24, the government had pegged gross market borrowing at Rs 15.43 lakh crore.

India's fiscal deficit for the first half of the current fiscal year, ending in September, was 7.02 lakh crore rupees, equivalent to 39.3% of annual estimates, an increase from the previous year's 37.3%. The government aims to reduce the fiscal gap to 5.9% of GDP, down from 6.4% in the previous financial year.

India's fiscal deficit target for FY25 is expected to decrease significantly in line with post-Covid consolidation plans, potentially dropping to a range of 5.3-5.4% of GDP from the current year's 5.9%. Despite a slowdown in capital asset investments, gross market borrowing is anticipated to remain high, with estimates for FY25 around ₹15.3 lakh crore. The reduction in the fiscal deficit target is attributed to a slower pace of capital expenditure, providing room for consolidation. The government is committed to lowering the fiscal deficit to below 4.5% of GDP by FY26.

The benchmark 10-year bond yield ended at 7.1624 per cent, after closing the previous session at 7.1969 per cent.