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Informist, Friday, Jan. 24, 2025

 

By Aaryan Khanna

 

NEW DELHI – The government's net market borrowing is seen shrinking for the second straight year in 2025-26 (Apr-Mar) as it continues fiscal consolidation. The Union Budget may cut the government's estimated net borrowing in FY26 to INR 11.20 trillion from INR 11.63 trillion this year, according to an Informist poll of 18 economists, fund managers, and treasury heads.

 

On a gross basis, the market borrowing through dated securities is seen at INR 14.55 trillion in FY26, against INR 14.01 trillion in the current year, according to the median of 15 economists. The government borrowed a record INR 15.43 trillion on a gross basis in FY24. 

 

Reserve Bank of India data shows that as on Jan. 20, government bonds worth INR 4.05 trillion are set to mature in FY26, higher than the Centre's bond repayments of INR 3.61 trillion for the current financial year. After the buyback of gilts worth INR 96.66 billion on Thursday, the redemptions for next year will come down to INR 3.96 trillion. Most analysts expect the government to bring down its redemptions in the next fiscal year by using the remaining cash collected from the goods and services tax cess fund.

 

"We believe the central government will utilise the balance amount of INR 675 billion in the GST Compensation Fund (towards repayment of back-to-back loan provided to states in lieu of the shortfall in GST Compensation Cess during FY21 and FY22) to reduce its issuances in FY26, something which it has been doing over the last two years," QuantEco Research said in a note.

 

The borrowing numbers across respondents are estimated based on India's fiscal deficit falling to 4.5% of GDP or lower in the next fiscal, as per the government's target. Respondents in the poll had differing estimates for gilt redemptions in FY26, with some expecting the RBI to switch gilts maturing in the next fiscal year with longer-dated securities before the Budget, due on Feb. 1.

 

Should the government choose to switch bonds – it is only INR 14 billion short of its INR 1.50 trillion estimate for FY25 – with the RBI, the gross borrowing figure would come down further. Estimates for the RBI's holdings of FY26 bonds range from INR 700 billion-INR 1.1 trillion.

 

To smoothen its market borrowing post FY26, analysts said the government may resort to a larger quantum of switches. The government has already bought back INR 881 billion worth of FY26 bonds this year, but economists say it may not have the same fiscal room in the next Budget. "We pencil in a huge INR 2.25 trillion worth of switches for FY26, given the INR 7 trillion of maturities in FY27," Nomura said in a note.

 

Regardless of the borrowing estimate, analysts do not expect government bond investors to struggle to absorb the supply. The government has had two years of borrowings relatively free from devolvements, with a boost from foreign investors in FY26 due to India's inclusion in global bond indices. In a note, Morgan Stanley estimated that even if foreign portfolio investors are net sellers of Indian bonds for up to INR 200 billion, against buys of INR 2.1 trillion estimated in FY25, domestic investors will have enough appetite to pick up its estimated net issuance of INR 11.20 trillion.

 

Following are the estimates for the government's net and gross market borrowing listed in alphabetical order of respondents' names:

      

Institution	Gross market borrowing (in INR trillion)	Net market borrowing (in INR trillion)
Bank of Baroda	15.0	10.8
Barclays	14	10.7
CareEdge Ratings	14.3-14.8	11.2-11.6
DBS Bank	15	11.4
Elara Securities	--	11.7
Goldman Sachs	--	11.2
HDFC Bank	14.8	11.2
HSBC	14	11.2
ICICI Bank	14.798	12.098
ICICI Securities Primary Dealership	14.29	11.11
IDFC FIRST Bank	13.98	10.58
India Ratings and Research	13.4	10.9
Kotak Mahindra Bank	15.6	11.8
Morgan Stanley	14.638	10.986
Nomura	14.41	11.03
Nuvama Institutional Equities	--	11.5-12
QuantEco Research	16.2	11.54
Standard Chartered Bank	14.5	10.9
Sundaram Mutual Fund	14.5	10.5

 

End

 

Edited by Avishek Dutta

 

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