📷 Image Credits: Moneycontrol
In the upcoming Budget in July, experts believe that the coalition government at the Centre is unlikely to change the market borrowing numbers, despite the higher dividend transferred by the Reserve Bank of India (RBI). This decision is primarily influenced by the additional funds expected to be utilized for government expenditure and maintaining the fiscal deficit at the targeted 5.1 percent of the GDP. Sakshi Gupta, Economist at HDFC Bank, mentioned that the extra headroom from the RBI dividend could lead to increased spending while keeping the fiscal deficit at the same GDP percentage. Similarly, Gopal Tripathi, Head of Treasury at Jana Small Finance Bank, also sees no change in the borrowing numbers in the Budget. The central government finances its fiscal deficit mainly by issuing dated securities. The interim Union Budget 2024 revealed a borrowing amount of Rs 14.13 lakh crore from the markets in 2024-25 in gross terms to finance the fiscal deficit, which was lower compared to the estimate for the current fiscal year. On the other hand, some experts predict a marginal cut in borrowings in the upcoming Budget to focus on a fiscal consolidation path. India Ratings mentioned that the Union government’s gross and net market borrowings are expected to decline in the FY25 full Budget from the interim Budget numbers. The recent higher-than-expected dividend transferred by the RBI in May led to speculation that the government might reduce its borrowing from the market. The Central Board of Directors of RBI approved the transfer of Rs 2.11 lakh crore as surplus to the government for FY 2023-24, based on the Economic Capital Framework. Economists anticipate that the RBI dividend could provide additional fiscal space and ease the fiscal deficit for FY25. Market participants are not likely to react significantly to bond yields post the Budget announcement, as borrowing numbers and inflows have already been priced in. JPMorgan Chase & Co is set to add India securities to the JPMorgan Government Bond Index-Emerging Markets soon.
