By Manish M Suvarna
Bond yields touched a 30-month high on Tuesday after the government announced a higher-than-expected gross market borrowing of Rs 14.95 lakh crore and a revised fiscal deficit of 6.9% for the current fiscal year, higher than the earlier estimate of 6.8%.
The new benchmark 6.54%-2032 bond yield ended 14 basis points higher at 6.8279%, compared to 6.6841%. The old benchmark 6.10%-2031 bond yield ended 16 basis points up at 6.8458%, as against 6.6829% close on Monday.
“Higher government borrowing, no clarity on taxation for listing of India in the global bond index and no announcement on retail participation in debt funds put pressure on yields,” said Marzban Irani, CIO — fixed income, LIC Mutual Fund.
The government will borrow Rs 14.95 lakh crore from the market, while net borrowing will be at Rs 11.2 lakh crore to bridge the fiscal deficit gap.
The market was expecting net borrowing to be in the range of Rs 12.50 lakh crore to Rs 13 lakh crore. The government has borrowed Rs 10.47 lakh crore, against the Budget estimate of Rs 12.05 lakh crore.
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Finance minister Nirmala Sitharaman said in her Budget speech that as part of the government’s overall market borrowings in 2022-23, sovereign green bonds would be issued to mobilise resources for green infrastructure. The proceeds will be deployed in public sector projects which help reduce the carbon intensity of the economy.
Under the sovereign green bonds category, the government will issue bonds such as infrastructure bonds with tax benefits, government guarantee bonds or GOI-serviced bonds through various state-owned companies such as National Bank for Agriculture and Rural Development and Food Corporation of India, among others. Additionally, the government is likely to issue oil bonds, Uday bonds and food bonds issued by previous governments.
“The demanding need of green infrastructure in the country has also been promisingly addressed in the form of the maiden sovereign green bond,” said Shyam Srinivasan, MD and CEO, Federal Bank.
The government has revised the current year’s fiscal deficit to 6.9% from 6.8% projected earlier. The Budget has projected a fiscal deficit of 6.4% of the gross domestic product (GDP) in FY23 and below 4.5% in 2025-26. The states will be allowed a 4% fiscal deficit in FY23.
Market participants expect yields to rise further in coming days due to supply-driven pressure.
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