MUMBAI: India’s central government’s gross market borrowings for 2023 and 2024 could come in below market expectations as a pool of securities raised to compensate states for a shortfall in goods and services tax may not be rolled over, economists say.
However, there are chances of the central bank paying the government a higher dividend, which could allow for a surprise at the budget presentation on Feb 1.
According to a Reuters poll of economists, the government’s gross borrowing for the financial year ending March 2024 is expected to be a record 16 trillion rupees (US$196bil or RM839bil).
ICICI Securities Primary Dealership expects net government borrowings of 12.5 trillion rupees (RM656bil) for the next financial year.
Furthermore, bonds worth four trillion rupees (RM209.9bil) are set to mature that year.
Typically, these redemptions would be added to the net borrowings to arrive at the expected gross borrowings. However, this year, some of these maturities are of bonds issued to give states government sales tax (GST) compensation, economists Prasanna A and Abhishek Upadhyay said in a note.
“Around 760 billion rupees (RM39.67bil) of GST compensation bonds are due for maturity in FY24. Once we knock these off, the ‘true’ gross borrowing comes to 15.8 trillion rupees (RM829bil),” the economists estimated.
India borrowed 1.1 trillion rupees (RM57.7bil) and 1.59 trillion rupees (RM83.4bil) in 2020-21 and 2021-22, respectively, to lend to states and compensate for a revenue shortfall from tax collections.
After adjusting for the redemption of such bonds in 2022 and 2023, IDFC First Bank expects gross borrowing of 15.50 trillion rupees (RM813.4bil).
This financial year, the government has switched bonds worth one trillion rupees with the market and the Reserve Bank of India by replacing bonds coming up for maturity in the next few years with longer-dated securities. — Reuters