Budget 2017 may encourage fresh inflows in debt: Avnish Jain

Avnish Jain, Head: Fixed Income, Canara Robeco Mutual Fund  “The Union Budget has undertaken a fine balance between fiscal prudence and spending by slightly increasing the fiscal deficit target to 3.2 percent of GDP for FY18. The revenue deficit is further pegged lower at 1.9 percent of GDP, compared to a reduced 2.1 percent in FY2017.The overall borrowing remains under check with gross borrowing number at Rs 5.8 trillion. However, closer look at Budget numbers show a startling picture. There were large inflows under small savings scheme (post demonetization) in FY2017 to the tune of Rs 0.9 trillion (BE Rs 0.22 trillion) which the government utilised to buyback government securities, maturing in 2017-18, to the tune of Rs 0.6 trillion. The same trend is likely to continue in 2017-18, wherein government is likely to use small savings inflows to buyback short term government securities to the tune of Rs 0.75 trillion. This clearly brings out government’s commitment to reduce the overall debt levels and stay on path of fiscal consolidation.   The government further extended the concessional rate of 5 percent withholding tax on debt investment by FIIs to June 2020 (the current was expiring on June’17), which will likely encourage fresh inflows in debt.”