Budget 2021: Here's what Deutsche Bank's Kaushik Das and ICICI Bank's B Prasanna have to say

The bond market sulked on Tuesday. There was almost a Re 1 fall across the board in several bond prices and bond yields rose from between 15 and 25 basis points (bps). Kaushik Das, Chief Economist, Deutsche Bank, and B Prasanna, Head-Global Markets Group, ICICI Bank discussed the economy and the fixed income part in an interview with CNBC-TV18.

ICICI Bank’s Prasanna said the headline fiscal is hiding a few positives in the budget.

“First is on the transparency and credibility because the government has brought in a lot of off-balance sheet borrowing through the fiscal deficit route. If you look at the fiscal deficit, it is coming down from 9.5 percent of gross domestic product (GDP) 6.8 percent next year is primarily done because of two things because that kept the overall expenditure constant because nominal GDP is growing by 14.4 percent as well as disinvestment is being higher than what is has been in the previous year. The third is that while overall expenditure is contained, they are spending more on capital expenditure which is a good part of it.”

“If you have to assume that nominal GDP will grow by 14.4 percent, with the tax buoyancy normally you would be fair in assuming a tax collection growth of even as high as 19-20 percent but they have just projected it at 15-15.5 percent. I would say that there is a downside with respect to the fiscal deficit numbers,” Prasanna mentioned.

On the 6.8 percent fiscal deficit target and on nominal GDP growth assumption of 14.5 percent, Deutsche Bank’s Das said, “I think the numbers are credible and it is very transparent. So this whole idea of doing away with these extra-budgetary resources and putting them on the balance sheet makes the fiscal numbers cleaner and it takes away the uncertainty premium that kind of builds in when you have a little bit of below the line kind of items. So from that perspective, 6.8 looks pretty decent. I would not expect any upside to this number.”

On the bond market, Das said, “The problem for the bond market is that we have got the borrowing numbers and we have to go according to those numbers at least for the first half of the financial year 2022 and RBI will have to give the borrowing schedule based on those numbers. Then the problem is demand/supply of bonds.”