Centre Slashes FY27 H2 Borrowing By ₹1.2 Lakh Crore

Synopsis

The FY27 gross market borrowing target by the Union government has been reduced by ₹1.2 lakh crore to ₹15.99 lakh crore of which ₹7.86 lakh crore will be raised through dated securities for the second half. Much of the debt switch is because of the debt switches worth of more than ₹1.1 lakh crore to make the redemption profile smoother.

The Numbers Behind the Cut

The Union government will tap securities for ₹7.86 lakh crore in the second half of the current fiscal year to cut borrowing requirement for FY27 by ₹1,20,494 crore amid global headwinds. Though the cut is primarily due to a conscious decision on debt management to swap G-secs with maturity due in 2026-27 with a total value of ₹1,14,286 crore, the official said.

The government plans to raise ₹7,86,000 crore through dated securities in the second half of FY 2026-27, the Finance Ministry stated in an official release, adding that the government has decided to borrow ₹15,99,506 crore in the next financial year - 2026-27.

The reduction was achieved in the ways

The lower diagram contains the debt-switch mechanism as its core. The reduction comes as debt switches worth ₹1.11 trillion are made to roll over securities due for repayment with a revised estimated repayment requirement of ₹4.36 trillion for FY27 against ₹5.47 trillion in the Budget.

Importantly, it is not an adjustment of the deficit-financing requirement, but only a gross-borrowing adjustment. The H2 calendar reduces the aggregate gross borrowing requirement for FY 27 but maintains the Budgeted amount of net borrowing.

The Auction Calendar

Implementation will be done in a systematic weekly programme. The gross market borrowing of ₹7,86,000 crore in H2 FY27 will be accomplished through 23 weekly auctions in a total of 57 securities, which include 3-, 5-, 7-, 10-, 15-, 30-, 40- and 50-year securities, the statement said.

More of the planned issuance will be issued in longer maturity bonds, which the government hopes will help it raise the Weighted Average Maturity, which had dropped in H1, thereby lowering the roll-over risk.

First-Half Context

The government raised ₹8,13,506 crore from bonds, which was marginally higher than the initial estimate of ₹8 lakh crore, to meet the revenue shortfall in the first half ending this month. This, along with the H2 figure, brings the gross issuance for FY27 to about ₹16 trillion, well within the original Budget Estimate.

Liquidity Safeguards

The RBI has a contingency mechanism in place to deal with short term cash-flow mismatch. Ways and Means Advances for H2 are stuck at ₹50,000 crore for temporary mismatch between receipts and expenditure and will be continued till the end of the period.

What does this mean for bond markets?

But a lesser gross supply of government paper at a time when yields have been under pressure following high crude price and rate expectations globally should help to ease some of the pressure on the domestic debt market, as compared to the challenges faced by the government paper issuers like SIDBI in the recent bond auctions.

Analysts will closely observe if the shortage of supplies means that the October auctions yields will be less robust, especially in the wake of the RBI's upcoming policy review.