Increase in net market borrowing to Rs 7.1 lakh crore likely to push pressure on yields

Sampath Reddy 

The Interim Budget has been a pragmatic and well-balanced one, benefiting various sections of society like farmers, middle-class, unorganized sector, defense etc.

As expected, a farm package was announced with direct benefit transfer of Rs 6,000 per year for those farmers owning up to two hectares of land.

The outlay for this package is Rs 75,000 crore, which is relatively less than some other farm packages being expected pre-budget. Also, there is interest subvention announced on loans for both farming and animal husbandry sector.

Despite being an interim budget, a huge benefit has been given on the personal taxation front for the middle class, with individual taxpayers being given tax rebate up to Rs 5 lakhs.

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Also, standard deduction has been increased from the current Rs 40,000 per year to Rs 50,000. Besides that, TDS limits have been raised on various savings instruments.

Individuals and the real estate sector is also expected to benefit from various tax advantages being provided to the sector. Overall, this tax saving will increase the disposable income in the hand of individuals, and provide a boost to consumption.

This is a positive for GDP growth too, with consumption growth slowing down a bit lately. We especially expect the consumer sectors to benefit, and the stock markets are already indicating that.

On the social security front, the government also announced a Mega Pension Scheme for the unorganized sector, under which individuals having a monthly income up to Rs 15,000 per month, will be provided a pension of Rs 3,000 per month, post-retirement.

This could turn out to be one of the largest social security schemes and follows the Ayushman Bharat Yojana (one of the world’s largest health insurance schemes) announced in the last budget.

On the fiscal front, there has been some slippage as expected. The revised fiscal deficit for FY19 stands at a revised 3.4 percent of GDP (vs 3.3 percent earlier), and for FY20 has been budgeted at 3.4 percent too (vs 3.0 percent earlier).

As a result, the gross market borrowing for FY20 has come in slightly higher at Rs 7.1 lakh crore, compared to the market expectation of around Rs 6.5 lakh crore and the net market borrowing for FY20 is Rs 4.73 lakh crore.

This will put some moderate upward pressure on bond yields (as been seen already). We continue to prefer the shorter end of the yield curve.

(The author is CIO, Bajaj Allianz Life)

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