INSUBCONTINENT EXCLUSIVE:
India is now the global hotspot for the pandemic, with infections climbing above 18 million casesThe unfolding Covid crisis in India is
raising expectations that Prime Minister Narendra Modi's government will need to raise more funds for stimulus even as the outbreak
States and cities through the country, including the capital New Delhi and financial hub Mumbai, have implemented lockdowns or curfews,
which are seen impacting public revenue
That comes as the authorities are lagging their existing financing target by Rs 188 billion ($2.5 billion) just one month into the new
fiscal year, according to Bloomberg's calculations based on official data.PM Modi's administration has fallen behind on its financing
plans after auctions in April failed to raise as much as it targeted
Sensing the government's growing need for funds, traders are holding out for higher yields, with the central bank forced to cancel sales
or boost purchases if it refuses to accede."The fear is that localized lockdowns may result in a slowdown which may be met by fiscal
expansion, and more borrowing pushing longer yields higher," said Vikas Goel, chief executive and managing director at PNB Gilts
India's curve is likely to steepen with the 10-year yield climbing to 6.35 per cent in the next two to three months from around 6.06 per
cent now, he added.The face-off marks the latest battle for control of India's bond market, after the central bank earlier rejected
traders' demands for higher yields at a sale of benchmark debt
Underwriters were forced to rescue a five-year bond sale on April 9 and the central bank missed its target for an offering last week.A debt
auction on Friday may provide a clue as to how the tussle will play out
The RBI is scheduled to offer bonds worth Rs 260 billion, including Rs 140 billion of benchmark 10-year notes.Much of the market's worries
center around the government's plan to borrow a near-record Rs 12.1 trillion this year
For now, there are no signs the government intends to increase that amount although Finance Minister Nirmala Sitharaman said last week she
won't hesitate to front load borrowings if the need arises.India is now the global hotspot for the pandemic, with infections climbing above
18 million cases, while deaths have exceeded 200,000
The government has come under increasing pressure as hospitals run out of beds, oxygen and medical supplies in many parts of the
country.Inflation ProblemTraders are also trying to assess whether the new lockdowns and curbs will disrupt the flow of goods and drive up
While the central bank has pledged to keep policy accommodative, it has warned that a failure to contain the second wave may disrupt
domestic supply chains and fuel inflationary pressures."The issue is how does the huge borrowing program go through," said V
Lakshmanan, treasurer at Federal Bank
"Investor interest has added up significantly in the short term, while the stated intent on new issuances is to go longer term from the
Further, there is too much focus on the benchmark paper."(Except for the headline, this story has not been edited by TheIndianSubcontinent
staff and is published from a syndicated feed.)