New Delhi, February 2
The Centre's market borrowings are set to rise sharply in FY27, a move that could put pressure on the bond markets, according to a report by the National Stock Exchange on the Union Budget 2026-27.
The report said the Centre's gross market fresh borrowings have been pegged at Rs 17.2 lakh crore for FY27, marking a notable increase of 17.7 per cent on a year-on-year basis. This higher borrowing requirement is expected to add to the supply of government securities in the market and could weigh on bond prices.
It stated, "Market borrowings to rise; likely to weigh on bond markets"
Despite repayment pressures in FY26 and FY27, the Centre's net market borrowings are projected to grow by 12.8 per cent year-on-year to Rs 11.7 lakh crore. This indicates that even after accounting for repayments, the government will continue to depend heavily on the market to meet its funding needs.
The NSE report highlighted that the reliance on market borrowings to finance the gross fiscal deficit (GFD) has increased in recent years. The share of market borrowings in financing the GFD is estimated to rise to 69 per cent in FY27 (Budget Estimates), compared with an average of 63.2 per cent over the last five years. This reflects a growing dependence on market-based funding to bridge the fiscal gap.
At the same time, the report pointed out a clear shift in the maturity profile of the Centre's outstanding debt. Over the past decade, the government has increasingly moved towards longer-tenure borrowings.
The share of outstanding debt with a maturity of over 20 years has nearly doubled to 25 per cent during this period. This shift towards longer-tenure debt is aimed at reducing rollover risks and spreading repayment obligations over a longer timeframe.
The report also noted that nearly two-fifths of the Centre's outstanding debt now has a maturity beyond 10 years, indicating a gradual lengthening of the debt profile. While this helps improve debt sustainability, the higher overall borrowing levels could still have implications for bond yields.
According to the NSE analysis, the trend in gross market borrowings of both the Centre and states shows a steady rise over the years, with the Centre's borrowings forming a significant portion of the total.
With fresh borrowings set to increase further in FY27, market participants may need to absorb a larger supply of government securities.
Overall, the report suggested that while the government is managing its debt profile through longer maturities, the sharp rise in gross and net market borrowings in FY27 is likely to remain a key factor influencing bond market dynamics in the coming year.
- ANI
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