Why has Union Budget increased the borrowings so much if the fiscal deficit has reduced?

In a way you are right that the fiscal numbers don’t appear to add up. Let us look at the fiscal deficit numbers first. In fact, rating agencies had been demanding that the fiscal deficit targets should be put on a glide path that trends lower. On the one hand, despite fiscal deficit overshooting by 10 bps at 6.9% in FY22, the government has guided lower fiscal deficit of 6.4% for FY23. It remains to be seen how this will be achieved.

However, that is not the point. The point is that the rating agencies fell that the Indian government is moving too slowly on fiscal deficit reduction. Budget 2022 has still kept a very relaxed time table to reach 4.5% fiscal deficit target by FY2026 and that is hardly betraying any signs of urgency in fiscal responsibility and discipline. But, the question of why the fiscal deficit has reduced and borrowings increased is perhaps answered by the capex target.

But even capex does not answer the full question. FY23 tax collections are expected to be robust, so that is not a concern. Government may have cut disinvestment targets for FY22 and FY23, but that is offset by lower spending on subsidies. However, on the capex front, most of the capex takes place at the state level, and that is why the limit of state GDP has been raised from 3% to 4% of GSDP. So, yes there are still some question marks.