India May Increase Annual Bond Sale Target by 10%, Survey Shows

July 3 (Bloomberg) -- India may raise its annual bond-sale target by 10 percent to a record in next week’s budget to fund a widening deficit as it spends more to revive the economy, a Bloomberg News survey showed.

Borrowing in the year ending March 31 may increase to 4 trillion rupees ($83.4 billion) from a previous estimate of 3.62 trillion rupees, according to the median forecast in a survey of 17 economists and investors. Finance Minister Pranab Mukherjee, who will present the budget on July 6, is facing the prospect of declining revenue amid the deepest economic slump since 2003.

Prime Minister Manmohan Singh, who won a second term in May, is spending more on infrastructure and poverty-alleviation programs to revive growth in Asia’s third-biggest economy. India’s budget shortfall may widen to a 19-year high of 6.5 percent of gross domestic product, according to Standard & Poor’s. Failure to rein in the budget gap will hurt the nation’s sovereign ratings, Moody’s Investors Service and S&P have said.

“The government must borrow more simply because it’s increasing expenditure at a time when revenue is shrinking,” said Prasanna Ananthasubramaniam, chief economist at ICICI Securities Primary Dealership Ltd. in Mumbai, who predicts bond sales will be raised to 4.34 trillion rupees, the highest estimate in the survey. All but one of the participants said the government will increase its debt target.

Growth Versus Rating

The Reserve Bank of India has forecast the $1.2 trillion economy will expand 6 percent in the current financial year, the slowest pace since 2003. Sustaining economic growth is a “higher priority at this moment” than sovereign ratings, Finance Secretary Ashok Chawla said on May 27. S&P, which currently rates Indian debt the lowest investment grade, cut its outlook to negative from stable in February.

Economic expansion may accelerate to as much as 7.75 percent this year amid signs of a “bottoming out” in the U.S. and harvests benefiting from monsoon rains, the finance ministry said in the annual Economic Survey released yesterday. Growth could be as little as 6.25 percent if there are delays in a U.S. revival, the report said.

India’s budget deficit widened to 6.2 percent of GDP last fiscal year, or 3.3 trillion rupees, the government said on May 29. That was the highest since 1991.

The benchmark 10-year bond yield has added 1.64 percentage points this year, the biggest advance in at least a decade, to 6.89 percent, according to data compiled by Bloomberg. Indian bonds are the worst performers this year among the 10 Asian local-currency debt markets outside Japan, with a 3.7 percent loss, according to indexes compiled by HSBC Holdings Plc.

‘Signs of Recovery’

Revenue from planned asset sales and savings on energy subsidies following a fuel-price increase this week may help the government raise funds without the need to borrow more, said Krishnamurthy Harihar, treasurer in Mumbai at the Indian unit of FirstRand Ltd., South Africa’s second-largest financial services company. He is the only participant in the survey who said the government may stick to its current debt-sale plan.

“I belong to a minority that believes the government will take its time before resorting to raising the bond target,” he said. “Also, there are signs of a recovery in the economy and that means tax inflows can only get better.”

India may raise more than 242 billion rupees from the sale of third-generation mobile telephone licenses, the Financial Times reported on June 21, citing people it didn’t name. The government is considering selling 10 percent of Bharat Heavy Electricals Ltd., the nation’s biggest power equipment maker, Heavy Industries Minister Vilasrao Deshmukh said last month.

The South Asian nation this week raised the price of gasoline by four rupees (8 cents) a liter and diesel by two rupees. Gasoline in New Delhi will be costlier by 9.8 percent after the first increase in fuel prices in more than a year.

CONTRIBUTOR Estimated borrowings
(trillion rupees)

Andhra Bank 4.00
Aviva Life Insurance Co. 3.90
Axis Bank Ltd. 4.10
Bank of Maharashtra 4.20
DBS Cholamandalam Asset Management 3.90
FirstRand Ltd. 3.62
HDFC Bank Ltd. 4.00
HSBC Holdings Plc 4.00
IDBI Gilts Ltd. 4.00
ING Investment Management 4.10
ICICI Securities Primary Dealership 4.34
Kotak Mahindra Bank Ltd. 3.80
Mirae Asset Global Investments 3.90
Securities Trading Corp. of India 4.10
Standard Chartered Plc 4.20
Sundaram BNP Paribas Asset Management 4.20
YES Bank Ltd. 3.90