The government's announcement to stick to the original borrowing plan is a right step, but it would be difficult to meet the target amid a slowing economy, economists and analysts said today.
"It is very difficult to stick to the budgeted borrowing plan of the current financial year in the wake of under-recoveries of oil marketing companies, among other subsidies. Though the government can do it through raising non-tax revenues (through disinvestment), there is a limit to that also," Crisil chief economist DK Joshi told PTI.
He, however, said the intention to meet the fiscal deficit target is a step in the right direction.
The government plans to borrow about Rs 5.71 trillion in this fiscal or 5.1 percent of GDP, out of which it had already borrowed around 65 percent (Rs 3.7 trillion).
Despite a wide expectation of the government overshooting the borrowing target, the Centre yesterday announced that it would stick to the original plan, creating a hope that it may meet the fiscal deficit target of 5.1 percent this fiscal.
The announcement has its impact on both the share as well bond markets today. While the Sensex welcomed the news with a 1 percent rally, the bond market reacted with a marginal decline.
On the fiscal deficit, Joshi said his agency sees fiscal gap widening to around 6.2 percent this fiscal compared to the targeted 5.1 percent.
An economist with SBI also echoed similar sentiment. "Overshooting the fiscal deficit target is understandable at this point on the back of a slowing economy. I think, fiscal deficit may be in the range of 5.3-5.5 percent," State Bank economist Brinda Jagirdar said, adding it's a welcome move by the government to show the intention to return to financial profligacy.
She also said the recent measures like hike in diesel prices, restriction on cooking gas cylinders would reduce subsidies.
On possible higher borrowing and its impact, an analyst from Angel Broking said G-Secs may not see much movement despite the expected higher borrowing.
"The government may miss the fiscal deficit target by 50-75 basis points. But, the sense is that this may not put any burden on the market. So, G-secs may not see much movement due to this," Angel Broking vice-president for research Vaibhav Agrawal said, adding the market has already factored in any rise in the borrowing calendar.
Nomura India, in a research note, said the announcement is in line with its expectations and the bond market will react positively to the news. "The key reasons for being bullish on the sovereign bonds include our expectation of limited supply in sovereign paper, substantial demand of bonds from the banking system in a low credit growth environment and our expectation of open market operations in the H2," Nomura said.