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Informist, Saturday, Feb. 1, 2025

 

NEW DELHI – The government will borrow INR 14.82 trillion through the sale of dated securities on a gross basis in the financial year 2025-26 (Apr-Mar), up from INR 14.007 trillion in FY25. The revised estimate for FY25 was adjusted marginally lower from INR 14.010 trillion in the Budget estimate.

 

On a net basis, the government will sell bonds worth INR 11.54 trillion, which accounts for repayments worth INR 3.28 trillion, according to the Budget for FY26 presented by Finance Minister Nirmala Sitharaman in the Lok Sabha Saturday. The net issuance is lower than INR 11.63 trillion in FY25. The government will use INR 675 billion from funds collected through the goods and services compensation cess to repay bonds in FY26, compared with INR 1.24 trillion in the current financial year, the receipts section of the Budget showed.

 

According to an Informist poll of 18 economists, fund managers, and treasury heads, the government was seen targeting net issuance of dated securities at INR 11.20 trillion in FY26. The Centre was expected to announce a gross borrowing of INR 14.50 trillion through dated securities, according to the median of estimates of 15 analysts.

The government has already completed a large part of its borrowing programme for FY25, that too without much trouble. It has borrowed INR 12.74 trillion through gilts so far this year, or 90.93% of the revised target. However, the Reserve Bank of India has partially devolved two auctions of a 10-year sovereign green bond on underwriters since November, and had raised only around INR 17 billion of the notified INR 120 billion through green bonds in Apr-Sept. This was the third straight year that the Centre had set out to borrow through sovereign green bonds.

 

The government aims to fund 73.5% of its INR-15.689-trillion fiscal deficit through market borrowing in the next financial year. In FY25, dated securities financed 74.5% of its fiscal deficit through borrowing, but accounting for buybacks worth INR 882 billion, the borrowing financed only 68.5% of the deficit. The government will also rely less on its cash balance for financing its fiscal deficit in FY26. Its cash drawdown in the next year is projected at INR 24.84 billion from the revised estimate of INR 519.51 billion in FY25. The Budget estimate for cash drawdown was 1.40 trillion in FY25.

The fiscal deficit for FY26 is pegged at 4.4% of GDP, down from 4.8% of GDP in the current year. Borrowing from small savings is pegged at INR 3.43 trillion in FY26, funding 21.9% of the deficit. This is lower than INR 4.12 trillion in the revised estimate, funding 26.2% of the deficit in FY25.

 

Net short-term borrowing, through the issuance of 91-day, 182-day, and 364-day T-bills, is seen at nil in the coming fiscal year, against a revised estimate of (-)INR 1.2 trillion for FY25. The revised estimate is even lower than the (-)INR 500 billion seen in the last Budget in July, itself an INR-1-trillion downward revision from the Interim Budget proposed in February last year.

 

The Budget also provided for issuing up to INR 500 billion in cash management bills in FY26, against a Budget estimate of INR 200 billion in FY25 that was revised to nil on Saturday. Meanwhile, use of ways and means advances--another item netted out within the financial year--was set at INR 500 billion.

 

The government has made no provision to buy back government bonds in FY26, though it conducted such operations after a gap of six years in FY25. So far in FY25, the government has bought back around INR 1.28 trillion worth of gilts, including those maturing in the current financial year, which had no impact on its fiscal deficit but reduced interest payments. Buybacks of bonds maturing in FY26 have totalled INR 881.64 billion, conducted across five auctions in October and January. In the FY25 Budget presented in July, the government had made no provision to buy back bonds maturing outside the current fiscal.

 

Meanwhile, the government aims to switch INR 2.50 trillion bonds in the next fiscal year, higher than the revised estimate of INR 1.47 trillion for FY25, largely unchanged from the budgeted amount. A switch operation entails replacing a security maturing in the near term with a longer-maturity paper, effectively postponing the government's debt repayment. ICICI Securities Primary Dealership and Nomura had estimated switch auctions to total more than INR 2 trillion in FY26.

 

The government bond market is shut Saturday, but gilt yields are expected to rise Monday after the higher-than-expected borrowing figure. The 10-year gilt yield rose slightly Friday to end at 6.70%, on caution before the Budget. However, traders are hoping for the government to switch the Reserve Bank of India's holdings of bonds maturing in FY26, estimated at INR 1 trillion, which could sharply bring down gross borrowing. Bond yields may not rise sharply as the deviation in estimated borrowing is not high, and because the RBI's Monetary Policy Committee is widely expected to cut the policy repo rate by 25 basis points at its meeting next week.

 

The following are key details of the government's proposed borrowing programme. All amounts in INR billion.

 

	Budget Estimate 2025-26	Revised Estimate 2024-25	Budget Estimate 2024-25
Gross	14,820.00	14,006.97	14,010.00
Net	11,538.34	11,628.79	11,631.81
Redemption	3,281.66	2,378.18	2,378.18
Net short-term borrowing	0	(-)1,200.00	(-)500.00
Borrowing through small savings	3,433.82	4,118.71	4,200.63
Buyback	--	881.64	--
Switches	2,500.00	1,467.94	1,500.00

 

End

 

Reported by Aaryan Khanna

Edited by Rajeev Pai

 

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