Making Sense

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...

"What we hope ever to do with ease, we must learn first to do with diligence" Asian markets are trading higher as China resumes after week long Lunar Holidays. China re-opening alongside lower quantum of rate hikes from the US Fed has lifted the sentiment around EM currencies.  USDCNH (6.75) is now back in the consolidation range of 6.65 - 6.78 in which the currency was trapped from May until mid August 2022.  USDKRW (1228) is trading below the May 2022 lows and now finds support at 1206-1207 levels. USDTHB (32.73) is also fast approaching the Feb 2022 lows at 32.07. While KRW and THB have appreciated over 15% against the USD followed by CNH, IDR has been a relative underperformer, appreciating only 5.50% from peak to trough.  USDJPY has been facing resistance at 130.60 - 131.00 levels since 23rd Jan 2023 with market consensus leaning towards further widening of the YCC band. Today, a report by a panel of academics and business executives urged the BOJ to make its 2% infl...

The Union Budget is drawing to a close and I thought of putting down my estimates for the Government Borrowing program.  GoI will present the Union Budget on Feb 1 , 2023.  In accordance with the amendment to the FRBM act, GoI targets to reach the fiscal deficit level below 4.5% of GDP by 2025-26. The Finance Minister said, “We plan to continue with our path of fiscal consolidation, and intend to reach a fiscal deficit level below 4.5% of GDP by 2025-2026 with a fairly steady decline over the period. We hope to achieve the consolidation by first, increasing the buoyancy of tax revenue through improved compliance, and secondly, by increased receipts from monetisation of assets, including Public Sector Enterprises and land.” This entails an annual reduction of 60 - 65 bps in the fiscal deficit number.  Accordingly, FY 24 fiscal deficit is pegged at 5.80% and gross borrowing at 16 trn. For FY 24, budget comes ahead of a heavy state election schedule and 2024 Lok Sabha electi...

"We must all suffer one of 2 things: the pain of discipline or the pain of regret" GoI released the advanced FY 22- 23 GDP estimates.  According to the first advance estimates released by the government, India's GDP may grow 7% for financial year 2022-23. Nominal GDP is estimated at ₹273.08 lakh crore, as against the Provisional Estimate of GDP for the year 2021-22 of ₹236.65 lakh crore. The nominal GDP growth for FY23 is estimated at 15.4% as against 19.5% in FY22. The key take away from the advance estimate release is higher nominal GDP growth gives cushion to the government towards an additional spending of 97K crore while retaining the fiscal deficit at 6.44%.  GoI efforts towards fiscal consolidation aim to bring fiscal deficit at 4.5% of GDP by FY26 which entails a 190 bps reduction in fiscal deficit over 3 years. This implies a 65 bps reduction with fiscal deficit at 5.80% could be targeted for the FY 24 budget.