Government bonds: Centre’s market borrowings via bonds cross Rs 100 lakh-crore mark

Mumbai: The Centre’s outstanding market borrowing through bonds has climbed past the ₹100-lakh-crore mark, largely as the Covid crisis triggered a surge in debt issuances as New Delhi sought to pump-prime a stalled economy through state spending.

The latest Reserve Bank of India (RBI) data showed that the outstanding stock of central government bonds, excluding special securities, was at ₹100.2 lakh crore. In 2017, the figure was around the ₹50-lakh-crore mark. The surge since then reflects the huge increase in government borrowing from 2020 onward, when the Centre’s bond issuances in a single financial year crossed the ₹10-lakh-crore mark for the first time.

While the Centre is committed to reducing its fiscal deficit from the highs witnessed during the Covid crisis, heavy redemptions of bonds issued earlier is likely to keep the gross borrowing elevated. The government’s gross market borrowing in any year is the sum of the net borrowing – used to finance the fiscal deficit – and borrowings made to repay earlier debt issuances.

“There is a concerted effort in reducing the fiscal deficit and adhering to the fiscal consolidation roadmap. Next year, the fiscal deficit could be closer to 5.5% of GDP or slightly lower. But that being said, you also have legacy issues where you have redemptions – previous borrowings that are going to be redeemed now,” said Sakshi Gupta, principal economist, HDFC Bank.

“That means that the consolidation that you are seeing on the fiscal deficit side may not translate into bringing the overall gross borrowings down,” she said.

In the next financial year, government bonds worth ₹3.86 lakh crore are set to mature while those worth a whopping ₹5.27 lakh crore are scheduled for maturity in FY26. The government’s gross borrowing programme in the current fiscal year is projected at ₹15.43 lakh crore, a record high.

Maiden 50-Yr Bond
Even as India’s combined debt-to-GDP ratio remains above 80% acting as a constraint to a sovereign rating upgrade, demand for government bonds remains resilient, especially for long-term bonds. On Friday, the government auctioned a 50-year bond for the first time. The auction witnessed robust demand from insurance companies, which have been requesting longer-maturity sovereign bonds in order to match their long-term liabilities. Government bonds are considered risk-free investments.

“It is a welcome step by RBI to introduce this long bond which has been on the wish list of insurance companies. The very fact that the bond has been subscribed at such low spread to the 10-year g-sec suggests that there is a good demand for the same,” Poonam Tandon, chief investment officer at IndiaFirst Life Insurance said.

The cutoff yield for the 50-year bond was set a mere 14 basis points above that on the 10-year bond auction, an unusually low gap. Typically, longer-maturity bonds have much higher yields than their short-term counterparts. Moreover, the 50-year bond received bids worth more than four times the notified amount of ₹10,000 crore, signalling strong demand.

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