Bonds fall and stocks rise.
India has doubled down on spending commitments, relying on an already swamped debt market to borrow and big spending to fuel growth. Bonds fall and stocks rise.
Prime Minister Narendra Modi’s administration will target a budget deficit of 6.4% of gross domestic product for the year starting April 1 – wider than the 6.1% average in a survey. Bloomberg — because it prioritizes growth over fiscal consolidation.
That plan would require borrowing a record 14.95 trillion rupees ($200 billion) to close the shortfall, far higher than the consensus 13 trillion rupees, as revenue from divestment was slow to succeed. realistic.
“While the fiscal expansion is expected to spur growth, the large supply is expected to worry the bond market,” said Upasna Bhardwaj, chief economist at Kotak Mahindra Bank Ltd. .
Indian bonds fell, with benchmark 10-year yields rising as much as 21 basis points. Shares traded 1.5% higher, compared with an earlier gain of 1.8%.
The easing in spending puts India at risk of becoming one of the deepest budget deficits among major economies as countries spend to get out of the recession caused by the pandemic.
What Bloomberg Economics says…
“This pro-growth budget poses the opposite risk to our short-term GDP growth forecasts. But it also risks crowding out private investment by driving bond yields higher. “
– Abhishek Gupta, Economist
Boosting government spending on infrastructure, job creation and productivity gains is key to the country’s sustained recovery, with growth this year reaching 9.2%, the fastest pace in history. number of major economies. The country expects the growth momentum to continue next year with an estimated GDP growth of 8%-8.5%.
“This budget continues to fuel growth,” Finance Minister Nirmala Sitharaman said at Parliament in New Delhi when presenting the annual plan. After using her first budget of 2019 to map out the government’s vision for the next five years, she used the plan Tuesday to unveil the so-called ‘Amrit Kaal’ – a term Hindi can loosely translate to the golden age – providing the blueprint for steering the economy over the next 25 years.
Sitharaman, who is increasingly turning to income from the sale of state assets to fund the budget, said the spending proposals would directly benefit the country’s youth, women and farmers, as well as public and private investment.
The long-awaited listing of Life Insurance Corporation of India, which could add up to $10 billion in state coffers if the government sells a 5% stake, is expected, she said. soon,” she said.
She highlighted spending on infrastructure, including roads, railways, airports, ports, public transport, waterways and logistics, as well as green energy transformation, digitalisation, public health community and social infrastructure.
Tuesday’s proposals also include taxing any cryptocurrency income at 30%, one of the highest rates among major economies. That may discourage trading in such volatile assets, a ban the central bank has repeatedly sought. The government has also announced a central bank digital currency, shortly after China began testing CBDCs in several cities and the US Federal Reserve and the Bank of England are looking at possibilities. its capacity.
The budget is also notable for what it doesn’t cover. Bond investors have been frustrated by the lack of progress in including India’s debt in global indexes. On Monday, Citigroup Inc. has recommended buying Indian sovereign bonds ahead of the federal budget, saying that the budget session is likely to see changes to the law allowing Indian bonds to be included in the EM bond index.
Other key takeaways from the budget are:
The current fiscal year budget deficit has been revised to 6.9% of GDP, compared with the target of 6.8%
Plan to issue sovereign green bonds for infrastructure spending
Spectrum auction next fiscal year to secure 5G network launch
Reduced current year’s asset sales target to Rs 780 billion from Rs 1.75 trillion and an estimated Rs 650 billion next year
Fertilizer subsidy to reach 1.05 trillion rupees next fiscal, oil subsidy at 58 billion rupees, food subsidy 2.07 trillion rupees
Dividend from RBI, financial institutions expected at Rs 739 billion
(Except for the title, this story has not been edited by NDTV staff and is published from an aggregated feed.)
