Do you see risks from higher borrowings for the ratings?

That is absolutely correct. The big risk as pointed out by rating agencies is not just the fiscal deficit but also the total borrowings. For FY23, the total borrowings of the central government is likely to grow by 25% from Rs.12 trillion to Rs.14.95 trillion. That is fairly hard to explain considering the lower revenue deficit. If it is not for revenue spending, the assumption is that the government is planning to take up huge capital spending in FY23.

However, capex is largely funded by the states and that is why the states have been allowed to raise their borrowing limit to 4% of GSDP. In that case, the next question would be why the government is taking the risk of higher borrowing plan, knowing fully well that it has serious implications for the credit rating of India and also for domestic interest rates. The decision to hike annual borrowings by 25% has already been red-flagged by raters.

Both Fitch and Moody’s are unhappy with India’s borrowing target. India’s sovereign rating remains a notch above speculative grade and the outlook is already negative for Fitch and S&P. In recent years, total borrowings crossed 90% of GDP, a level much higher than the rating peer group. It is hard to fathom why Budget 2022 has gone so aggressive on borrowings when the ratings are already at risk.