Bloomberg News

India to Exceed Its Record Borrowing Target as Economy Slows

December 29, 2011

Dec. 29 (Bloomberg) -- India will exceed its unprecedented borrowing target in the year ending March 31 as it attempts to close a budget shortfall amid slowing revenue collections, a finance ministry official said today.

The ministry will unveil a new calendar for borrowings on Jan. 2, the official said, declining to be identified before a public announcement. The government hasn’t finalized the size of additional borrowings, the official said.

Indian 10-year benchmark bond yields have jumped the most in Asia after Vietnam, as the government sold more debt to meet its target of keeping the budget gap to 4.6 percent of gross domestic product. The Reserve Bank of India has said the government must rein in borrowings to help check price gains and boost economic growth.

“The revenue front is not looking good and a pick-up in collections is unlikely this year,” said Prasanna Ananthasubramanian, a Mumbai-based economist at ICICI Securities Primary Dealership Ltd. He expects the budget deficit between 5.5 percent and 6 percent of GDP this year.

The yield on the 8.79 percent bonds due November 2021 rose six basis points, or 0.05 percentage point, to 8.54 percent at 3:53 p.m. in Mumbai. The rupee declined 0.7 percent to 53.4238 per dollar while the BSE India Sensitive Index, which has lost more than a fifth of its value this year, dropped 1.2 percent.

The government may borrow an additional 400 billion rupees ($7.5 billion), said N.S. Venkatesh, head of treasury at Mumbai-based IDBI Bank Ltd. He predicts the 10-year bond yield will climb to 8.70 percent if the extra borrowing is as he estimates.

Stock Slump

Achieving the goal to lower the government’s revenue shortfall to a four-year low of 4.6 percent by March “will not be easy” as a cooling economy curbs tax collections and state asset sales have stalled due to the fall in the stock markets, the finance ministry said this month. India expanded its annual borrowing program in September by 13 percent to a record 4.7 trillion rupees.

India is selling more debt as a stock market slump forced state-owned companies including Oil & Natural Gas Corp. and Steel Authority of India Ltd. to delay share sales. The government has raised only 11.4 billion rupees from asset sales compared with a target of 400 billion rupees by March 31.

The nation’s indirect tax revenue rose 16.9 percent in the eight months through November from a year earlier, S.K. Goel, chairman of the Central Board of Excise and Customs, said Dec. 9. That compares with a target for a 17.3 percent increase this fiscal year.

The government also plans to borrow as much as 500 billion rupees ($9.5 billion) using land and shares as collateral, two government officials with direct knowledge of the matter said earlier this month.

The central bank has boosted the repurchase rate by 375 basis points in 13 moves since the start of 2010, the most aggressive tightening since the monetary authority was established in 1935, according to data compiled by Bloomberg.

--With assistance from Unni Krishnan and Jeanette Rodrigues in Mumbai Editors: Arijit Ghosh, Abhay Singh

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To contact the reporter on this story: Anto Antony in New Delhi at aantony1@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net


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