With uncertainty prevailing over the geo-political situation, the Government is watchful over an unexpected rise in the government bond yield, a senior Government official said on Monday. He assured that the government may take appropriate steps as and when required. He also said that the government is on track to achieve the fiscal deficit target as prescribed in the budget.
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India’s 10-year benchmark bond yield was trading at 7.37 per cent, which is nearly 20 basis points higher than in September. “If yields go beyond tolerance level, we will take appropriate remedial actions,” the official said, without giving an indication about the level at which it will take steps.
According to a research report by Motilal Oswal, rising bond yields have a series of repercussions for the Indian financial market. Higher bond yields will create a problem for bank bond portfolios as the prices of bonds will fall. Rising bond yields also negatively affect the NAVs (Net Asset Values) of debt funds. Additionally, Indian corporates may be forced to borrow at higher rates of interest, and government borrowing programs will suffer. At the same time, it could also have a negative impact on equity valuations.
Fiscal Deficit & Debt Management
Going by the current trend of income and expenditure, the official expressed confidence of meeting fiscal deficit target of 5.9 per cent, as estimated in the Budget of FY2023-24. “There is not much to worry about (fiscal deficit) going off the mark,” he said. However, the government will need to carefully plan its spending to hedge for unforeseen geopolitical issues, he added.
When asked about lowering of debt burden, he said the government will show “progressive improvement” in lowering its overall debt in the next few years and bring its fiscal deficit below 4.5 per cent of GDP by 2025-26, he said. Last week, Finance Minister Nirmala Sitharaman said that the finance ministry is looking at ways to bring down government debt and is monitoring the debt reduction measures taken by emerging market economies,
The central government’s debt stood at ₹155.6 trillion, or 57.1 per cent of gross domestic product (GDP), at the end of March 2023. During the same period, the debt of state governments stood at about 28 per cent of the GDP. High debt and the high cost of debt servicing have been challenging for India in its bid to improve its credit ratings.
The official highlighted that collection under the Mahila Samman Saving Certificate, and Senior Citizen Schemes have been very good. While the Mahila Samman Saving Certificate was announced in the FY24 budget, the government also doubled the limit for the Senior Citizen Saving Scheme to ₹30 lakh in the current fiscal. “Under, Mahila Samman Saving Certificate, net collection between April and now is over ₹13,500 crore. Similarly, under the Senior Citizen Saving Scheme, net collection surged to over ₹74,000 crore as against around ₹29,000 crore during the corresponding period of last fiscal,” he said.
He also made it clear that it has been a conscious decision to not revise the interest rate on the Public Provident Fund and many other tax saving schemes as a post-tax benefit; the interest rate has been high on these schemes.