Centre cuts market borrowing plan for FY23

The government cut its planned market borrowing on Thursday, sending a strong indication that the fiscal situation is comfortable despite higher expenditure on food and fertiliser subsidies. The borrowing plan is expected to provide some comfort to the jittery bond market ahead of the Reserve Bank of India RBI monetary policy announcement on Friday. The Centre will borrow 5.92 lakh crore in the second half of FY 23, which is 10,000 crore less than intended, according to an official statement. The first-ever green bonds, worth 16,000 crore, will be included in the second half of the borrowing. Aditi Nayar chief economist, ICRA, said that the government may be able to absorb a large portion of the higher-than-budgeted expenditure, which appears to have restricted the size of the H 2 FY 23 borrowing programme, because of dated securities for FY 23 in the budget at 14.95 lakh crore. After a switch operations on January 28, 2022, this was lowered to 14.31 lakh crore and 14.21 lakh crore. There will be a reduction in lending and a rise in credit demand in the past few months, which will calm concerns about the possibility of crowding out of private sector borrowing. The benchmark 10 year government bond yield was almost unchanged at 7.3405% on Thursday against 7.3340% on Wednesday. Yields are likely to take a cue from the tone and outlook portrayed by the monetary policy committee's statement on Friday, especially the ones regarding how much more monetary tightening lies ahead, according to Nayar. The bank of Baroda chief economist Madan Sabnavis said yields would be driven by the liquidity situation in the short term. He said that they will be driven by the repo rate and progress on the inclusion of India bonds in global indices in the long term. The government has a fiscal deficit of 6.4% of GDP in FY 23. The Centre could raise 10,000 crore from other sources, such as small savings, a government official said, adding that additional expenditure would be financed by higher tax revenues and savings by some ministries. The food and fertiliser subsidy bill, which has been pegged at Rs 3.12 lakh crore for FY 23, is facing an increase in the government's food and fertiliser subsidy bill. The fertiliser subsidy bill for FY 23 is expected to be around Rs 2.3 lakh, due to higher international prices. The food subsidy bill is likely to jump to 3.84 lakh crore as opposed to the Rs 2.07 budgeted for this fiscal year, after another three-month extension of the free food grain scheme was announced on Wednesday. Tax collections are seen as absorbing most of the additional spending. In the first half, direct and indirect tax collections have grown by about 30% and are expected to surpass budgeted estimates. The finance ministry said that the RBI will announce details of the sovereign green bonds later. The gross market borrowing will be completed through 20 weekly auctions, spread over securities with tenors of two, five, seven, 10, 14, 30 and 40 years. The greenshoe option will allow the government to retain a further subscription of up to 2,000 crore against each of the securities indicated in the auction notification. The Centre will issue treasury bills worth Rs 22,000 crore a week in the third quarter of FY 23, which will result in a borrowing of Rs 2.86 lakh crore. The RBI has fixed the ways and mean advances WMA limit for the second half at Rs 50,000 crore in order to take care of temporary mismatches in government accounts.