“In the Interim Budget presented today by stand-in FM Piyush Goyal, the Fiscal deficit for FY 19 has been revised to 3.4% from the initial 3.3%. Inspite of a Rs 1 lakh cr slippage on account of GST collections ( RE – Rs 6.43 lakh cr vs BE 7.43lakh cr), the slippage in fiscal deficit from BE has been contained to 10,000 cr only. (RE Rs 6.34 lakh cr vs BE Rs 6.24 lakh cr). Last year after announcing a gross borrowing of Rs 6.05 lakh cr of market loans, government had slashed it twice and reportedly brought it down by Rs 70000 cr and issued calendar for Rs 5.35 lakh cr. However now the quantum of reduction is only Rs 35000 cr which implies Gross Borrowing of Rs 5.7 lakh cr as RE for FY19. Hence additional borrowing of Rs 35000 cr for FY19 is to be expected. This can be negative as market was not expecting any fresh supply for remaining period of FY19.
For FY20, the gross borrowing is pegged at Rs 7.09 lakh crore as compared to Rs 5.7 lakh cr (RE) for FY19. Fiscal deficit is pegged at 3.4% for FY20, a little higher than market expectations. Post these announcements gilt prices have fallen and yields have risen. We expect mood to remain a bit subdued and focus to shift to the RBI Monetary Policy Review on Feb 7th where we expect RBI to maintain status quo on rates and shift stance from calibrated tightening to neutral. We remain cautious and have reduced duration in our debt funds in run up to the budget.”