GoI Budget announcement

GoI announced the Union Budget on Feb 1, 2023. The Budget has been applauded by participants for sticking to the fiscal glide path, increasing the allocation for capital expenditure to Inr 10 trn, no populist measures ahead of the Elections, continuity of tax regime and credible forward projections.

Key Highlights:

Fiscal Deficit target of 6.40% for FY 2023 and 5.90% for FY 2024

FY Gross Market borrowings of Inr 15.43 trn and net market borrowings of Inr 11.80 trn in dated securities and Inr 50000 cr in T-bills. The number was lower than market expectations of Inr 16 trn in gross borrowings.

Total expenditure of GoI increased inr 242,000 crore which was financed by increase in revenue receipts of Inr 144,000 cr and higher borrowings of Inr 98000 cr. The rise in expenditure, to the extent of inr 200,000 crs was primarily on account of food and fertiliser subsidy. 

For FY 24, the budget assumes nominal GDP Growth of 10.50%. The tax revenue is estimated to grow at 12%. While growth in expenditure is estimated at 1.25% from revised estimates, there is a significant thrust on capital expenditure which is 37% higher from FY 23 revised estimates and outlay on capital expenditure for FY 24 is at Inr 10 trn. 

The revenue deficit at 2.90%, effective revenue deficit as 1.66% and primary deficit at 2.34% reflects the quality of expenditure by the GoI.

GOI will be looking to finance a deficit of Inr 17.98 trn through the below composition:

Out of total borrowing of 12.3 trn, 11.80 trn will be through dated securities and the balance 0.50 trn will be through T-Bills. 

Interest rate markets applauded the budget lower fiscal deficit and market borrowing. 10Y Gsec yields pushed lower at open but inched higher on expenditure announcements by the Finance Minister. However, as the announcement progressed and markets saw the budget as credible and lacking populist streak, yields fell sharply lower to close the session at 7.28%. OIS Rates were also similarly received throughout the curve with 1m - 1Y curve (down 3 - 6 bps) falling less than the 2 - 10Y segment (down 11 - 13 bps). USDINR continued to trade in the 81.65 - 82.05 zone. 

Today, the rates market opened lower in continuation to yesterday's momentum and lower US Treasury yields. But the overhang on markets post the Adani-Hindenburg event, continues to be immense. USDINR rose to highs of 82.20 and yields retraced higher to close the session. 10Y Gsec Yield closed at 7.295% while 1Y and 5Y OIS closed flat.