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Informist, Friday, Jan. 30, 2026

 

By Aaryan Khanna

 

NEW DELHI – The government's net market borrowing is likely to remain steady in 2026-27 (Apr-Mar) from the previous year as the pace of its fiscal consolidation slows and it enters a new mechanism of targeting its debt-to-GDP ratio as opposed to the fiscal deficit as a percentage of GDP. The Union Budget for FY27 may peg the net market borrowing through dated securities at INR 11.6 trillion, similar to INR 11.54 trillion for this year, according to an Informist poll of 30 economists, fund managers, and treasury heads.

 

Finance Minister Nirmala Sitharaman will present the Budget on Sunday. An Informist Poll median sees the government target a fiscal deficit of 4.2% of GDP for FY27, down from 4.4% in FY26. The government is also expected to target a debt-to-GDP ratio of 55.1% in the FY27 Budget, according to the poll, one percentage point lower than the 56.1% projected for FY26. The government is aiming to cut its debt-to-GDP ratio to 50% by March 2031 with a consistent downward trajectory, though the target has band of 100 basis points on either side to provide flexibility.

 

"Given fiscal consolidation is going to be quite modest in our baseline assumption, normally we would expect net borrowing numbers to rise in absolute rupee terms," ICICI Securities Primary Dealership said in a report. "However, we believe government may be able to avoid that by increasing the dependence on other sources, including short-term borrowings via T-bills (Treasury bills)."

 

Estimates for net T-bill issuance range from nil, the same as the last two financial years, to INR 1 trillion, distorting estimates for both gross and net borrowing through dated securities. Estimates for funding through the National Small Savings Fund also vary. The net market borrowing is expected to comprise 67-73% of the fiscal deficit in FY27, lower than 73.5% budgeted for FY26. The revised estimates for FY26 could also show a lower reliance on market borrowing, with small savings collections likely to shoot past budget estimates. The Centre has brought down its budgeted gross issuance by INR 100 billion to INR 14.72 trillion in September and is on track to undershoot even that as it had rejected bids at a bond auction in October. This will take the total borrowing in FY26 to only INR 14.61 trillion, a full INR 210 billion lower than the budget estimate.

 

The gross market borrowing is still expected to hit a record INR 16.3 trillion in the new fiscal year that will start in April, eclipsing the previous record of INR 15.43 billion raised in FY24, the poll showed. The rise is largely due to heavier bond redemptions of INR 5.47 trillion in FY27. The Centre's redemptions scheduled until FY31 are over INR 5 trillion annually due to its increased borrowing that was triggered by the COVID-19 pandemic. For comparison, the Centre only had to account for redemptions of INR 3.28 trillion in FY26.

 

Around INR 1.36 trillion of the FY27 redemptions are tied to GST compensation the Centre had paid to states during the pandemic. However, the government will no longer be able to service the debt using GST compensation cess fund as it already pre-paid equivalent debt in previous financial years using collections from GST compensation cess. In FY26, this effectively brought down its redemptions by INR 675 billion. The compensation cess will be discontinued from Sunday and any excess collections in the fund are likely to be distributed between the Centre and states.

 

"In the bond market, yields also respond to gross supply rather than just headline deficit numbers," Sneha Pandey, fund manager – fixed income at Quantum Asset Management Co. said in a note. "Even in a year where fiscal consolidation is successful, heavy redemption schedules could keep term premia under pressure, creating upward stress on yields despite stable net borrowing."

 

Several respondents also expect the government to conduct a bilateral gilt switch with the Reserve Bank of India in the remainder of FY26 to reduce its hefty FY27 redemptions. The central bank and the government had in May conducted a bilateral switch of INR 373 billion for two bonds maturing in FY27 and have previously announced a gilt switch just before the Budget.

 

Economists estimate the RBI holds between INR 700 billion and INR 950 billion of gilts maturing in the coming financial year. Further gilt switches with the market are unlikely. Informist had reported that the government had met its gilt switch target for FY26 through switches and buybacks worth INR 2.5 trillion.

 

"While our borrowing numbers in theory could be reduced, should the GOI (Government of India) further switch some of the FY27 maturities for longer tenors in upcoming switches, we expect the amount to be minimal given: 1) recent switches have included very little FY27 source bonds; 2) long-end demand remains tepid; 3) higher (state bond) supply; and 4) ongoing RBI OMO (open market operation) auctions," Nomura said in a report.

 

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

 

Institution	Gross market borrowing (in INR trillion)	Net market borrowing (in INR trillion)
ANZ Bank India	17	11.5
Bank of Baroda	15.5-16.0	10.0-10.5
Barclays	16.6	11.1
CareEdge Ratings	16.0-17.0	11.5-12.0
DBS Bank	16.5	12
Emkay Global Financial Services	16.9	11.5
Goldman Sachs	16.9-17.3	11.4-11.8
HDFC Bank	16.0-16.5	11.7
HSBC	16.0	11.5
HSBC Mutual Fund	16.3	11.84
ICICI Bank	16.5	11.6
ICICI Securities Primary Dealership	16.22	11.2
ICRA	16.9	12.2
IDFC FIRST Bank	16.0-16.75	11.28
India Ratings and Research	16.14	10.6
JM Financial	15.47	11.6
Kotak Mahindra Asset Management Co.	15.6	11.6
Kotak Mahindra Bank	16.08	11.68
LIC Mutual Fund	15.0-16.0	10.0-11.0
Morgan Stanley	15.8	11.63
Motilal Oswal Financial Services	16.52	11.92
Nirmal Bang Institutional Equities	15.1	11.6
Nomura	17.5	12.03
QuantEco Research	16.2	10.7
Quantum Mutual Fund	16.3	11.6
Standard Chartered	16.1	11.5
State Bank of India	16.3	11.7
STCI Primary Dealer	16.6	12
Sundaram Asset Management Co.	15.0-16.5	10.5-11.5
YES Bank	17	11.5

 

End

 

Edited by Deepshikha Bhardwaj

 

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