Let us first understand the H2 borrowing programme in terms of assumptions. Do you think the assumptions are in line with what the bond market was expecting?
Upasna Bhardwaj: Yes, absolutely. I think there is no real surprise to the numbers. 6.6 lakh crore was the gross borrowing that was expected by the government. So, they have stuck to the plans that they had announced. And so accordingly, there is no surprise really on the markets front.The borrowing number assumes certain amount of tax buoyancy. Can I argue back and say that at a time when government capex is running behind what their committed schedule is because of elections and other events, do you think the tax assumption numbers could challenge in terms of their actual borrowing versus assumed borrowing numbers?
Upasna Bhardwaj: No, in fact, I think if you just look at how the fiscal deficit as a percentage of the total BE numbers is faring right now for the four months that we have the data for, they are at 17% of the overall budgeted numbers and that is lower than where they were earlier last year, same time.
Clearly, they have a lot of room and buffers to build in. And I do not see really risk of any fiscal slippage. On the other hand, if you ask me, the tax buoyancy is still robust and as a result of which there is a, I mean, I would say if I was to put a bias, then there is a possibility, a marginal though, of a lower fiscal deficit by the end of the year.
We will have to wait and watch, of course, but overall I think these numbers are fairly realistic on the fiscal maths front and that can be achieved. And hence, I do not see any slippage risk at all.
Inflation now and I am not looking at CPI data, WPI data which is an indicator of economic activity, should one, and I am being the devil’s advocate here, that is at 3% from last six months, is not that an indication that the wholesale end of the economy is slowing down, the corporate part of the economy is slowing down?
Upasna Bhardwaj: If you look at the overall corporate earnings data, that itself is not yet suggestive of any major slowdown. But clearly, if I was to look ahead, then there are some risks which are building up in terms of demand and that could have a bearing on the corporate sector. Now, see, the wholesale side, of course, it is a major reflection of how the global commodity prices and the cycle is, we know that the prices have been fairly low and that itself is having a bearing on wholesale prices, so that is one side of it. The other side is, of course, the retail inflation, which is of course right now being led largely by food prices, so that deviation is there more because of food, but overall commodity prices are low and hence, that is keeping the non-food categories fairly in check.
So, if the borrowing programme is in line with what the market was expecting, then why have we seen a rally in the bond market, the yields have come down to a 30-month low?
Upasna Bhardwaj: No, that had already acted, I mean, we had already seen some kind of a market reaction until yesterday before the borrowing calendar. The borrowing calendar, second half announcement came post market hours.
There was some kind of expectation, which was building up in the markets, from what I gather, that there could be a possibility of an announcement of a cut in the borrowing in H2, lower than 6.6 lakh crore and that was a reason for a rally going ahead.
In fact, if you look at from today’s market openings in the bond markets, there is a slight element of disappointment because the far end of the curve has seen more supply when markets were expecting that there should be more supply coming in in the lower end of the curve because that is where the major demand is.
Now, because demand is high in the shorter end of the curve, you would expect that the shorter end of the curve starts rallying much more than the far end of the curve.
