The additional spending on food and fertilizer subsidies from the government to the poor and farmers will offset higher collections of goods and services tax and personal income tax, the people said, speaking on condition of anonymity. .
As a result, fiscal losses due to the recent GST cut will have to be covered through additional market borrowing, the people said. Calls to a spokesman for the Ministry of Finance went unanswered outside New Delhi business hours.
The rising debt load is likely to spook India’s bond market, with yields on the benchmark 10-year bond surging over the past month. The Reserve Bank of India, which is already managing a record borrowing program, surprised investors with an off-cycle hike in interest rates this month.
Record borrowing Over the weekend, the central government slashed taxes on the retail price of petrol and diesel, exempted coking coal from import duties and increased spending on fertilizers and gas for the poor. According to a tweet by Finance Minister Nirmala Sitharaman, it reduced the excise duty on diesel by Rs 6 per litre and by Rs 8 per litre on petrol.
The loss of income comes as investors are eyeing the government’s record borrowing program, soaring price pressures reflected in wholesale and consumer price indices and the prospect of sharp interest rate hikes by the central bank.
India has budgeted to raise about 14.3 billion rupees through debt issuance in the current fiscal year ending March 2023. All borrowing is in local currency, and banks and insurance companies are the biggest buyers of sovereign debt.
Analysts such as Barclays chief India economist Rahul Bajoria are raising their budget deficit estimates. Bajoria expects India to have a budget shortfall of 6.9% in fiscal 2022-23, higher than New Delhi’s forecast of 6.4% of GDP.