India may find it hard to meet its budget-deficit target in the current fiscal year, Finance Minister Pranab Mukherjee said after the government last week decided to sell more debt.
“It is difficult to maintain the ceiling,” Mukherjee told the Bloomberg UTV television channel in Mirati, his village in the Indian state of West Bengal, referring to the budget- shortfall goal. “I can’t say how I will be able to maintain it now without looking at the cash flows,” he said in the interview that was broadcast yesterday.
Ten-year bond yields in India climbed yesterday to the highest level in three years on concern demand for existing securities will decrease as the government boosts debt sales. India’s federal government on Sept. 29 increased its bond-sale target for the second half of the financial year by about 32 percent, citing outflows from national savings accounts.
“Increased debt supply is likely to exert an upward pressure on yields in the near-term,” said Anubhuti Sahay, a Mumbai-based economist at Standard Chartered Plc. She expects the budget gap to widen to 5.4 percent of gross domestic product in the year ending March 31.
Mukherjee aims to narrow the deficit to a four-year low of 4.6 percent of GDP during the period.
The yield on the 7.8 percent securities due April 2021 was little changed at 8.54 percent at the close of trading in Mumbai yesterday. Earlier in the day, it had risen to 8.55 percent, the highest level for benchmark 10-year notes since September 2008, according to data compiled by Bloomberg.
Bond Sale
The finance ministry plans to raise 2.2 trillion rupees ($44.5 billion) selling bonds in the six months ending March 31, higher than the budgeted 1.67 trillion rupees, R. Gopalan, secretary, Department of Economic Affairs, said last week. The government raised 2.5 trillion rupees in the first six months of the year.
Individual investors withdrew 61.9 billion rupees between April and August from small-savings deposit plans such as those run by post offices, after adding 238.56 billion rupees in the year-earlier period, official data show. The state-run savings programs offer a return of 8 percent, while State Bank of India, the nation’s biggest lender, offers 9.25 percent interest on one-year deposits, according to its website.
Fitch Ratings said Oct. 3 that any further deterioration in Indian government finances may “weigh” on the nation’s debt ratings, even though the decision to increase the annual borrowing plan was expected.
India’s BBB- rating by Fitch, the lowest investment grade, is currently “well supported” with a stable outlook, said Andrew Colquhoun, Hong Kong-based head of Asia-Pacific sovereign ratings at Fitch.
The Indian government’s announcement to issue more debt is “not surprising” and is “within the scope of expectations,” Takahira Ogawa, Singapore-based director of sovereign and international public finance ratings at Standard & Poor’s, said Oct. 3. The nation’s budget deficit will exceed the government’s target, he said, without elaborating.
To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net
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