Better-than-expected revenue collections have put a lock on the sum of all fiscal fears for now. Early this week, the government dispelled concerns of additional debt over and above the budgeted Rs 12.05 lakh crore during the current fiscal. Until recently, it was presumed that market borrowings will exceed this by at least Rs 1.5-2 lakh crore, thanks to unforeseen entries like the GST compensation cess, free food grain distribution, fertiliser subsidy and others. But all such speculation has been shot down with the government sticking to its annual borrowing calendar. The good news is, if it maintains lower borrowing and higher revenue for next six months, chances are that FY22 fiscal deficit will print below 5.5% of GDP, lower than the budgeted 6.8%. And if the revenue run rate continues, the medium-term fiscal deficit target of 4.5% of GDP can be achieved well ahead of the targeted fiscal year FY26.
But the move failed to bring cheer in the bondland as the 10-year benchmark yield continued to harden hours after the announcement. That’s because the positive news was neutralised by rising US bond yields and firming up global crude oil prices. Despite the government’s improving fiscal position, the return of foreign investor inflows and falling inflation, the RBI too appears reluctant to let core system liquidity rise further, given the implications for its bond buying programme. Lastly, the rupee too came under pressure, but market watchers aren’t worried given the robust external account and forex reserves.
While rising revenue is working in everyone’s favour, particularly advance tax collections during the September quarter that shot up by 50% over last year, non-tax revenue—specifically disinvestment receipts—can give us a stagger. The government is believed to be making some pleasing progress with regards to the stake sale of Air India and BPCL, yet most believe the overall disinvestment target will likely be missed by a country mile. The government needs to work at double speed to rake in as much as it can to give itself flexibility in pushing expenditure and supporting growth.