India plans record $109b bond sale to spur growth

Bloomberg

Indian Prime Minister Narendra Modi’s government plans to sell an unprecedented amount of bonds for a second straight year as a slowing economy forces it to sacrifice fiscal discipline.
The administration plans to borrow 7.8 trillion rupees ($109 billion) in the year starting from April 1, Finance Minister Nirmala Sitharaman said in her budget speech on Saturday. That’s in line with estimates compiled by Bloomberg News, and tops the record 7.1 trillion rupees targeted for the current year.
Higher sales may weigh on the bond market that has struggled in the past three months on fears the government will widen its budget deficit to revive economic growth from the lowest in over a decade. Traders are counting on the central bank to continue with its open-market debt purchases to help soak up the excess supply.
“The frontline numbers have not created any major disappointment,” said Lakshmi Iyer, chief investment officer debt at Mumbai-based Kotak Mahindra Asset Management. Bonds may climb on Monday, helped by the announcement of higher limits for foreign investors and RBI’s intent to support yields, she said.
Government expects the budget deficit for the year starting April 1 at 3.5% of the GDP. That compares with a revised estimate of 3.8% for this fiscal year, wider than the 3.3% targeted previously.
Sitharaman said she is using a provision in fiscal laws to enable the government to breach a mandated goal to bring the deficit down to 3% of GDP by the year ending March 2021.
The yield on benchmark 10-year bonds rose four basis points on January 31. It has climbed 15 basis points in the November-January period.
India’s gross borrowings for the current fiscal maintained at 7.1 trillion rupees. The government is planning net borrowings of 5.45 trillion rupees for FY21: budget documents.

Tax cuts
India’s finance minister slashed taxes for individuals, scrapped a levy on dividends and widened budget deficit targets to help spur a slowing economy. The measures failed to cheer investors.
Personal income tax rates for individuals were lowered as part of a goal to lift consumption in an economy that’s set to grow 5% this fiscal year, the weakest pace in more than a decade.
The tax measures, which carried riders, fell short of investors’ expectations with many hoping for a larger boost to the economy. Local stocks dropped, with the benchmark S&P BSE Sensex index plunging 2.4%, its biggest drop in more than three years. The bonds and currency markets were shut.