Government borrowing is higher in the next fiscal year and this is driving up bond yields as it comes at a time of global inflation and rate hikes by the Fed. Including states the total borrowing for fiscal 2022-23 is closer to Rs 24 trillion on a gross basis and Rs 20 trillion on a net basis.
RBI will be hard pressed to manage such large borrowing and if they finance the deficit through bond purchases, it will be highly inflationary in nature and will take up inflation higher.
Given the supply and inflation, 10-year g-sec yields will rise to well over 7% levels and stay high for a longer period of time.
Fiscal deficit and borrowing
Ø For FY22, fiscal deficit has been revised to 6.9% of GDP from 6.8% of GDP earlier
Ø For FY23, fiscal deficit has been pegged at 6.4% of GDP
Ø Fr FY23, gross market borrowing has been set at Rs 14950 billion while net market borrowing pegged at Rs 11186 billon
Budget Nos(Rs billion) | FY22BE | % change over FY21RE | FY22RE | % change of FY22 BE | FY23BE | % change of FY22 RE |
Gross Fiscal Deficit | 15068.12 | -18.49% | 15910.89 | 5.59% | 16611.96 | 4.41% |
Nominal GDP | 223645.388 | 14.20% | 232147 | 3.80% | 258234.00 | 11.24% |
Fiscal Deficit % of GDP | 6.800 | -28.42% | 6.900 | 1.47% | 6.40 | -7.25% |
Government Borrowing Net | 9317.22 | -26.85% | 8757.71 | -6.01% | 11186.12 | 27.73% |
Government Borrowing Gross | 12000 | -13.67% | 10465 | -12.79% | 14950.00 | 42.86% |
Government Net Borrowing % of Fiscal Deficit | 61.83% | -10.26% | 55.04% | -10.98% | 67.34% | 22.34% |