India plans gross market borrowing of about 6 trillion rupees ($111 billion) in the year through March 2014, a record high, according to three Finance Ministry officials with direct knowledge of preliminary estimates.
The increase from 2012-2013’s level will provide funds for government spending and debt repurchases as existing sovereign bonds near maturity, the officials said, asking not to be identified as the details aren’t public. Another official said borrowings will climb next fiscal year, without giving a figure. Exact numbers have yet to be finalized, all four said.
India’s government faces the task of containing the widest fiscal deficit in major emerging nations to avert a credit-rating downgrade to junk status. Finance Minister Palaniappan Chidambaram, due to unveil the budget Feb. 28, has vowed to pare the gap even as economic growth falters and an election due by May 2014 adds pressure for spending to win the support of voters.
Chidambaram’s goal is a shortfall of 4.8 percent of gross domestic product in 2013-2014, from 5.3 percent this year. Government expenditure has contributed to price pressures that have limited room for interest-rate cuts in an economy expanding at the weakest pace in a decade.
Still, GDP growth will be sufficient for Chidambaram to meet his budget-gap goals as a percentage of the economy even as borrowings climb, the officials said.
“There are challenges to the deficit-cut plan given the slow economic recovery and the fact that we are heading into an election year,” said Dhawal Dalal, head of fixed income at DSP Blackrock Investment Managers Pvt. in Mumbai. Whether the budget targets can be achieved remains to be seen, he said.
Gross borrowings are the total amount of debt the government needs to raise including funds to repay maturing debt.
Benchmark 10-year bond yields have dropped 25 basis points this year. The yield on the 8.15 percent note due in June 2022 rose to 7.80 percent at 12:59 p.m. in Mumbai from 7.78 percent earlier, according to data compiled by Bloomberg. The BSE Sensitive Index declined 0.1 percent. The rupee strengthened 0.2 percent to 54.0950 per dollar.
Indian government notes returned 11.5 percent in the past 12 months, the best performance in Asia, according to indexes compiled by HSBC Holdings Plc.
The government this week reduced its borrowing program for the current financial year, after Chidambaram limited expenditure and raised as much as 220 billion rupees by selling stakes in state companies.
India canceled a 120 billion-rupee bond sale due this month, which would have been the last for the current fiscal year. The 2012-2013 gross borrowing target before the cancellation was 5.69 trillion rupees.
The government may consider buying back as much as 400 billion rupees of bonds next financial year to help manage record redemptions in the following 12 months, two Finance Ministry officials said last week. Notes worth 1.68 trillion rupees are due to mature in the year ending March 2015, budget documents show.
Local fixed-income and foreign-exchange markets were closed yesterday for a public holiday.
Reserve Bank of India Governor Duvvuri Subbarao has indicated that the fiscal shortfall, a record current-account deficit and elevated inflation will limit the magnitude of interest-rate cuts.
Subbarao lowered the repurchase rate to 7.75 percent from 8 percent last month, the first reduction since April last year.
Wholesale-price inflation eased to a 38-month low of 6.62 percent in January, while consumer-price growth accelerated to 10.79 percent, one of the highest levels in major economies.
The statistics agency predicts GDP growth of 5 percent in the year through March 2013, the least since 2002-2003.
Standard & Poor’s and Fitch Ratings lowered the outlook on India’s credit rating to negative from stable last year, citing risks such as the budget and trade deficits. That brought the nation a step closer to losing its investment-grade status.