India to maintain borrowing plan after lowering corporate tax

The move to maintain the borrowing plan will be seen as a positive for bonds, after a cut in corporate tax rates stoked concerns in shortfall in revenue.

Shoppers and pedestrians walk past roadside stalls in Mumbai. | Photo: Dhiraj Singh | Bloomberg

New Delhi/Mumbai: India’s government will maintain its borrowing plan for the remainder of this fiscal year, an official told reporters in New Delhi.

Prime Minister Narendra Modi’s administration will likely sell about Rs 2.68 lakh crore ($37.8 billion) of bonds in the six months beginning Oct. 1, as part of its record Rs 7.1 lakh crore full-year plan. India had a target to borrow Rs 4.42 lakh crore in the fiscal first-half started April.

A decision on the nation’s maiden foreign-currency sovereign bond sale, announced first in July, has not been made, the official said, asking not to be identified citing rules.

The move to maintain the borrowing plan will be seen as a positive for bonds, which have declined in six of the past eight weeks, after a cut in corporate tax rates stoked concerns a shortfall in revenue will be met through higher debt sales. A Bloomberg survey of economists last week indicated the budget deficit may widen to a four-year high.

The new borrowing schedule will be announced on Sept. 30, the official said. The delay in announcement is to help banks avoid any mark-to-market losses.

The yield on the 10-year bonds rose three basis points to 6.77% as of 3:50 p.m. in Mumbai after dropping to 6.75% on reports the plan will be kept the same.

Yields on the benchmark 2029 notes surged as much as 24 basis points on Friday, the most since February 2017, after the stimulus measures. Flip-flops over the government’s plans for a $10 billion overseas debt sale added to the pain as the issuance was meant to shift abroad a part of the borrowings.

While Finance Minister Nirmala Sitharaman has said there were no plans to revise the borrowing target for now, traders remain cautious. Standard Chartered Plc is forecasting the need for as much as 800 billion rupees of new debt on top of the originally planned amount for the full year.

Last week’s tax cut, estimated to cost Rs 1.45 lakh crore in lost revenue, may push the fiscal deficit wider to 3.9% of gross domestic product for the year to March, compared with a goal of 3.3%, according to the Bloomberg poll. – Bloomberg