The upcoming Union Budget, which will be presented in Lok Sabha on February 1, may bring a few surprises on the fiscal front, according to economists. News agency Reuters reported that economists expect that the central government’s gross market borrowings for FY24 could come in below market expectations. This is mainly due to state competition against a shortfall in GST collection has ended.
This may result in the government raising less money from the pool of securities. However, the report also says that there are chances of the RBI paying the government a higher dividend.
Reuters poll of economists shows that they expect the government’s gross borrowing to be a record Rs 16 lakh crore (about $196 billion) for the fiscal year through March 2024.
However, ICICI Securities Primary Dealership, according to the report, expects net government borrowings of Rs 12.5 lakh crore in FY24. They also say that bonds worth Rs 4 lakh crore are set to come up for redemptions in FY24.
Economists Prasanna A and Abhishek Upadhyay say that typically, these redemptions would be added to the net borrowings to arrive at the expected gross borrowings. However, this year, some of these maturities are of bonds issued to give states GST compensation.
“Around Rs 76,000 crore of GST compensation bonds are due for maturity in FY24. Once we knock these off, the ‘true’ gross borrowing comes to Rs 15.8 lakh crore,” the economists say.
The government borrowed Rs 1.1 lakh crore in 2020–2021 and Rs 1.59 lakh crore in 2021–2022 to lend to states and make up for a shortfall in GST revenue.
According to the report, IDFC First Bank expects a gross borrowing of Rs 15.50 lakh crore after adjusting for the redemption of bonds in 2022-23.
Additionally, the RBI’s dividend payout to the government for the fiscal year could come as a surprise. Due to significant dollar sales, the RBI, which will pay a dividend after March 31, would have most certainly booked larger profits, the report says.
The RBI has been measuring dollar sales against its historical cost of purchasing dollars, which IDFC First Bank estimates to be 62.3 as of FY19.
According to Madhavi Arora, an economist at Emkay Global Financial Services, the RBI’s dividend of close to Rs 1 lakh crore to the government could boost its income and allow it to keep its borrowing in check.