The stock market may not have found reasons to cheer the 2024 interim Budget, but the reaction from the bond market was contrastingly different. With bond yields declining by 1.18 per cent on Thursday, experts say the budgeted revenue and expenditure targets laid out by the finance minister bodes comfortably for the overall borrowing programme.

For one, with the government’s anticipated capital expenditure easing a bit, it should leave more money on the table for private participants. This is viewed positively especially when the economy is on the verge of a pickup in private capital expenditure or capex. “The interim Budget was a positive surprise for the bond markets and from a fiscal consolidation perspective. Overall, if the trend is maintained it should result in reducing cost of borrowings for the government and should see a pass through in cost of borrowing from the bond market for the corporates,” said an economist with a leading private bank.

What’s more is that experts believe the budgeted revenue and expenditure is not a tall target to meet, and budgeted revenue in specific has been computed on conservative estimates. Explaining this, the economist says the interim Budget has factored in for 13 per cent increase in tax revenues. “On 10.5 per cent nominal GDP, this estimate is par for course,” he adds.

Concurring with this views most experts are confident that the possibility of seeing a huge variation in fiscal deficit numbers even when the post-election Budget is presented in June or July, the fiscal deficit estimates pegged at 5.1 per cent of GDP in FY25 may not see a significant variation. However, Devendra Pant, Chief Economist, India Ratings & Research, cautions that when the main Budget is presented after elections, it’s likely that the expenditure priorities could be different. “Also, between now and July how the domestic factors and global economic conditions play out will be very critical to gauge the overall fiscal consolidation number,” he adds.

There is another variable which experts point to — that of India’s inclusion in the global bond index likely by mid-2024. At present the likely inflows from the bond infusion isn’t factored. Experts believe that if inflows are in line with the $23–30 billion estimates then the borrowing requirements maybe even lower, further easing the bond yields. But in this case, Pant’s concern is that India’s inclusion in the index may increase the volatility in the bond market. “Bond yields will then be influenced by several factors including inflation, currency movement, fiscal deficit, crude oil movement and global factors,” he points out.

To that extent while the overall trend is that of easing the cost of borrowing, India’s inclusion in the global bond arena will be a significant event to watch out.

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