MUMBAI (Reuters) – India’s central government gross market borrowing for 2023/24. could come in below market expectations because the pool of securities raised to compensate states for shortfalls in goods and services taxes may not be reversed, several economists said.
However, there are chances that the central bank will pay the government a higher dividend, which could cause a surprise at the budget presentation on February 1.
Gross government borrowing is expected to hit a record 16 trillion rupees (about $196 billion) for the fiscal year to March 2024, according to a Reuters poll of economists.
ICICI Securities Primary Dealership expects net government borrowing of 12.5 trillion rupees for the next financial year. In addition, 4 trillion rupees worth of bonds are due to be redeemed that year.
Normally, these redemptions would be added to net borrowings to arrive at expected gross borrowings. However, this year some of these maturities are bonds issued to give states GST compensation, economists Prasanna A and Abhishek Upadhyay said in a note.
“About 760 billion rupees of GST offset bonds mature in FY24. When we finish them, the ‘true’ gross borrowing is 15.8 trillion rupees,” economists estimate.
India borrowed 1.1 trillion rupees and 1.59 trillion rupees in 2020-21 and 2021-22, respectively, to lend to states and make up shortfalls in tax collection.
After adjusting for redemption of such bonds in 2022-23, IDFC First Bank (NASDAQ: ) expects gross borrowing of 15.50 trillion rupees.
This financial year, the government swapped 1 trillion rupees worth of bonds with the market and the Reserve Bank of India (RBI) by replacing bonds maturing in the next few years with long-term securities.
“Gross issuance of G-sec can be reduced further using a combination of market and RBI switches,” which could reduce gross borrowing to 15.1 trillion rupees, IDFC First Bank economist Gaura Sen Gupta said in a note.
Then there is also the potential for a surprise regarding the RBI’s dividend payment to the government next financial year.
The RBI, which will announce the dividend after March 31, is likely to make more profit due to heavy dollar selling.
As of 2018/19, the RBI measures dollar sales against the historical dollar purchase price, which IDFC First Bank estimates at 62.3.
“RBI’s dividend is likely to get support from stronger dollar sales, with gross sales tracking at $180 billion for April-November, up from $97 billion in FY22,” Sen Gupta said.
This, according to Madhavi Arora, an economist at Emkay Global Financial Services, could allow the RBI to pass on a dividend of close to 1 trillion rupees to the government, boosting its revenue and allowing it to keep its borrowing under control. ($1 = 81.6350 Indian Rupees)