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Govt’s large borrowing to put pressure on bond return

The Financial Express
Interim Budget, PM-KISAN, farm sector, rural schemes, PSE borrowings, gross market borrowing

The Interim Budget 2019-20 shows that the growth rate in tax revenues will slow down. Total tax revenue is projected to grow 13.5% in FY20 as compared to 17.2% in FY19. While the rural and middle class incentives could have a positive impact on consumption, the Budget shows a fall in capital expenditure. The share of capital expenditure in total expenditure is at 12.1% in FY20. Being an election year, the government focused on the farm sector with an income support scheme called PM-KISAN. The government will provide Rs 6,000 a year to around 120 million small and marginal farmers with land holdings up to 2 hectares. The cash transfer will mainly benefit marginal and small farmers in Hindi-belt states such as Uttar Pradesh, Madhya Pradesh, Chhattisgarh, Rajasthan, Jharkhand and Haryana, which are all electorally key for the BJP.

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In addition to the new scheme, the government has increased allocation in most rural schemes. In fact, the total allocations to major rural schemes is around Rs 4,34,600 crore in FY20, a 22% increase from the revised estimates of FY19. The gross market borrowing of the Union government is budgeted to rise by 27% year-on-year to Rs 7.6 lakh crore. This is likely to pressure bond yields. Also, off-budget and PSE borrowings have been rising, which have led to a structural steepening of the yield curve.