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The Centre on Friday announced a plan to borrow Rs 7.86 lakh crore from the market on a gross basis in the second half of the current financial year, in sync with market expectations, which will help ease pressure on bond yields. Gross market borrowing for the whole financial year has been reduced to Rs 16 lakh crore, compared with Rs 17.2 lakh crore announced in the Union Budget for FY27.
After accounting for repayments, the Budget pegged the net market borrowing at Rs 11.7 lakh crore.
Economic affairs secretary Anuradha Thakur told FE that net market borrowings, which signifies financing of the fiscal deficit is kept at the budget levels, “implying that in spite of the incipient fiscal pressures, the government is committed to the path of fiscal prudence laid out in the budget.” “Government is managing its debt in the most prudent manner by resorting to switches/buybacks etc and is aiding the market by not adding any additional pressure,” Thakur said. The restraint is expected to help stabilse the borrowing costs of both the general government and Corporate India.
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Since the Budget was presented, switch auctions of government securities were conducted, which reduced the gross market borrowing to Rs 16.09 lakh crore. Of this, the government had planned to borrow 51%, or Rs 8.2 lakh crore, in the first half of FY27. The government ended up borrowing Rs 8.1 lakh crore during April-September.
In the calender for H2 unveiled on Friday, the government reduced the share of short-term bonds and increased the share of long-tenure bonds to lower the “roll-over risk”. The gross market borrowings for the second half includes Rs 15,000 crore to be raised via sovereign green bonds.
The benchmark 10-year government bond yield has risen sharply in recent weeks, on account of the spike in US treasury yields and re-emergence of imported inflation concerns from higher crude oil prices. The 6.94%, 2036 bond rose to an over four-month high of 7.119% on Friday, up from 7.107% on Thursday. Since March end, the bechmark yield has risen around 8 basis points.
Market borrowing is the main source used by the government to finance its fiscal deficit. The Budget set the fiscal deficit target for FY27 at Rs 16.96 lakh crore, or 4.3% of GDP. Other sources of financing the fiscal deficit include small savings and external debt.
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The gross market borrowing of Rs 7.86 lakh crore in H2FY27 will be completed through 23 weekly auctions ending March 5. The Centre will continue to reserve the right to exercise greenshoe option to retain an additional subscription of up to Rs 2,000 crore against each of the government securities indicated in the auction notifications.
The government has reduced the share of short-tenure bonds (3-15 years) in the H2FY27 calendar, with the share of bonds with tenure of 3-years to 15-years down to 72% from 75% in H1FY27.
Instead, the share of long-term bonds (30,40, 50 years) has increased to 28% from 25% in first half of the year. The Centre also expects to borrow Rs 2.99 lakh crore through the issuance of 91-day, 182-day, and 364-day Treasury Bills in the October–December quarter.
The government has increased “ultra long bond supply incorporating market feedback”, said Gaura Sen Gupta, chief economist at IDFC FIRST Bank. “Demand for ultra long is better due to investors and already steep curve. Short-end supply has been reduced to make space for OMO (open market operation) sales,” Sen Gupta said.
The share of bonds with tenure of 5 years is slated to fall the most in H2FY27 to 12% from over 15% in H1FY27. Notably, 15-years tenured bonds saw the biggest rise, with their share rising to 17.6% in H2FY27 from 14.5% in the first half of the financial year. Bonds with 10-years tenure continued to have the largest share at 26.3%, though it was also lower from 29% in H1FY27.
“The focus on the long end will help us increase our Weighted Average Maturity (WAM) which had fallen during H1. A longer WAM will help reduce the roll-over risk,” Thakur said.
The size of the weekly auctions has been kept at Rs 33,000 crore to Rs 36,000 crore for October-March, as compared to Rs 28,000 crore to Rs 34,000 crore seen in H1FY27. The government will raise the Rs 15,000 from green bonds through 30-year tenured securities.
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