The Budget has attempted to restrict the fiscal deficit to 4.8 per cent of GDP in 2013-14 and thereby curtail the net long-term Government borrowing during FY-14 to around Rs 4,84,000 crore in FY12-13).
However, the forecast of the gross long-term borrowings of the Government exceeds market expectations even as the ability to limit the fiscal deficit may be tested during the course of the year, raising concerns that borrowings of the private corporate sector may be crowded out.
Nevertheless, the proposals to simplify KYC norms and provide better access to various foreign investors will enable a new set of investors to enter the domestic bond markets.
Moreover, the proposed enhancement of the list of eligible securities for pension and provident funds as well as direct participation in the debt segment of the stock exchanges (on receipt of regulatory approvals) is likely to speed up the development of the bond market and mobilise stable long-term resources.
Accordingly, we expect corporate bond market activity to improve on the back of continued efforts to broad-base and deepen the market and expectations of continued, albeit limited, monetary easing resulting in some softening of interest rates over the next few quarters.
(The author is MD and CEO, ICRA.)