Just after a day Finance Minister Nirmala Sitharaman presented the Union Budget for the upcoming fiscal year of April 2022- March 2023 in Parliament on February 1, Citigroup Inc. withdrew a buy call on Indian bonds. There has been a spike in the yields and it surged the most in almost two years on Tuesday after the Finance Minister declared a bigger-than-anticipated borrowing plan, although it was not clear from the details that who could buy the paper.
This is the fourth budget that Sitharaman presented and third budget being presented while India is trying to recover from the impact of the COVID-19 pandemic.
Before the Budget 2022 came out, Citi along with some other investors bet that the Budget will come up with a path for inclusion of Indian debt in global indexes, to help maximise foreign inflows. But the Budget didn’t fulfil their expectations. As it seems, the government of India is open to borrow unprecedented amounts of money just as its central bank runs out of room to buy more bonds.
There is high probability that the 10-year yield will hit high in coming months in the absence of any support, according to various traders. The yield rose five basis points to 6.89 per cent on Wednesday, after surging by 14 points on Tuesday.
Now traders are waiting for the Reserve Bank of India’s (RBI) policy meeting to happen next week.
In the six months to September 2021, the RBI made a record of buying bonds worth 2.4 trillion rupees through its various open-market operations, keeping 10-year yields around an average 6.10 per cent. It halted the support in October.
The government will also be tapping small savings of Rs 5.67 trillion in the next fiscal, as against Rs 6.78 trillion in the current fiscal, so that it can bridge its fiscal deficit of 6.4 per cent of the gross domestic product (GDP).
The net borrowing will be Rs 11.19 trillion in 2022-23, as against Rs 7.76 trillion in this fiscal.
The Finance Minister stressed on the use of 'green bonds' that will be used for 'green infrastructure'. These bonds will be used for climate change and environmental focused projects. They will also boost the financing of clean energy projects.
