Budget 2019: Govt to sell first global bond to fund infra and spur growth

Government plans to narrow its budget deficit target and sell its first global bond to raise funding for infrastructure spending to spur economic growth. Bonds rallied.

The fiscal deficit goal for the year that began on April 1 was lowered to 3.3% of gross domestic product from 3.4% set in February’s interim plan, Finance Minister Nirmala Sitharaman said in her maiden budget in Parliament in New Delhi on Friday. That plan will in part be funded by increasing taxes on the wealthy and selling stakes in state-run companies.

“Those in the highest income brackets need to contribute more to the nation’s development,” Sitharaman said. She aims to raise Rs 1.05 trillion ($15 billion) from asset sales, compared with Rs 900 billion targeted previously.

Prime Minister Narendra Modi, who returned to office in May following a landslide election victory, is under pressure to revive consumption and investment after latest data showed growth slipping to a five-year low 5.8% in the three months to March. Sitharaman said the nation needs Rs 20 trillion annual investment on infrastructure, and the government will be tapping the overseas bond market for funds.

India’s benchmark 10-year bonds dropped 12 bps to 6.63% while the rupee pared losses.

GDP growth is forecast to rebound to 7% in the current fiscal year from 6.8% last year, the Finance Ministry said in a report on Thursday, mirroring a projection from the Reserve Bank of India. The central bank has cut interest rates three times this year to spur growth.

These are some of the highlights from the budget speech:

• Net market borrowing for 2020 fiscal year set at Rs 7.1 trillion
• Customs duty on gold increased to 12.5% from 10%; proposes adding excise duty of Re 1 per liter each on diesel and gasoline
• Government proposes Rs 700 billion of capital support to state-run banks versus Rs 1.06 trillion last year
• Seeks to bring non-banking finance companies under RBI rules, also allow the central bank to regulate housing finance companies
• Tax proposals: 25% tax rate for companies with revenue of up to 4 billion per year; owering GST rate on electric vehicles to 5%
• Government will allow 100% FDI in insurance intermediaries; rules for investment in media to be eased
• Limits on foreign portfolio investment to be raised to be on par with foreign direct investment