ICRA anticipates the gross market borrowings of the Government of India (GoI) and the General Government to rise about 5 per cent and 10 per cent year-on-year (yoy) in FY24 even as GoI is expected to peg its fiscal deficit in the FY24 Budget Estimates (BE) at 5.8 per cent of the GDP, a healthy moderation from the 6.4 per cent of GDP projected for FY23.

With higher redemptions, the credit rating agency expects the gross market borrowings of the GoI and the General Government (representing the indebtedness of GoI and State Governments) to rise to ₹14.8 lakh crore and ₹24.4 lakh crore, respectively, in FY24 from ₹14.1 lakh crore and ₹22.1 lakh crore, respectively, in FY23.

Gross borrowings

Aditi Nayar, Chief Economist and Head – Research and Outreach, ICRA Ltd, observed that with a larger redemption of Government Securities and State Government Securities, gross borrowings are estimated to enlarge to ₹24.4 lakh crore in FY24 from the projected ₹22.1 lakh crore in FY23. This is likely to push up the 10-year G-sec yield to 7.4-7.75 per cent after the presentation of the Budget, she added.

Nayar observed that with a global growth slowdown looming large, the FY24 Budget needs to focus on sustaining the domestic growth momentum, while demonstrating a continued commitment towards fiscal consolidation in addition to limiting the rise in the market borrowings.

“In our assessment, the Budget can appreciably enhance the GoI’s capital expenditure to ₹8.5-9.0 lakh crore and target a lower fiscal deficit of 5.8 per cent of GDP, aided by the welcome cushion offered by lower subsidies.

“Despite this, higher redemptions will enlarge its gross dated market borrowings….”

Aided by robust direct tax collections and GST inflows, ICRA expects the GoI’s net tax receipts to overshoot the budgeted amount by a healthy ₹2.1 lakh crore in FY23.

This, combined with expenditure savings to the tune of about ₹1 lakh crore along the lines seen over the last 5-6 years on an average, are expected to partly offset the sizeable net cash outgo announced in the First Supplementary Demand for Grants and the shortfall in non-tax revenues and disinvestment receipts.

Fiscal deficit

Consequently, ICRA expects the GoI’s fiscal deficit to print at ₹17.5 lakh crore in FY3, exceeding the budgeted amount of ₹16.6 lakh crore. However, a larger-than-estimated GDP would allow the fiscal deficit to remain at the budgeted target of 6.4 per cent of GDP.

The rating agency estimates the GoI’s gross tax revenues (GTR) in FY24 at about ₹34 lakh crore, a YoY expansion of 9.4 per cent (over projected level for FY3), with growth in direct taxes likely to outpace that in indirect taxes. The latter is expected to be constrained by customs duty collections and reversion of excise duty on auto fuels to pre-Covid levels.

ICRA projects the GoI to target a double-digit growth in capital expenditure to about ₹8.5-9.0 lakh crore in FY24, relative to the level of ₹7.5 lakh crore, expected in FY23. In contrast, revenue spending is expected to rise by a relatively muted about 3 per cent, dampened by a lower outgo on account of the food and fertiliser subsidy.