Budget 2025: Government may announce Rs 14-15 lakh crore market borrowings via bonds

The expected amount by the government to borrow from the market is inline with the current financial year’s borrowing plan.

In July, 2024, Finance Minister Nirmala Sitharaman announced the gross borrowing target from the markets in 2024-25 of Rs 14.01 lakh crore to finance its fiscal deficit of 4.9 percent of the GDP.

The central government in the first half of current financial year has borrowed nearly Rs 7 lakh crore, and has planned to borrow Rs 6.61 lakh crore in the second half.

The government's borrowing is among the most important determinants of interest rates in the economy. Higher-than-expected government borrowings can push up rates for all bond issuers — sovereign and corporate — while interest rates can decline if the government tightens its belt and borrows less than anticipated.

Borrowings are loans taken by the government to fund its spending on public services. Usually, the government borrows the money through securities such as government securities and Treasury bills.

Experts said that the borrowing cost for the government is expected to lower in next financial year due to expected rate cut by the Reserve Bank of India (RBI) and the inflows from the foreign investors in the global bond index.

“Bond yields are expected to edge lower in FY26 on the back of RBI rate cuts, sufficient domestic and global demand for India bonds, debt capital inflows, lower inflation and moderation in US yields,” said Sakshi Gupta, Economist, HDFC Bank.

So far in FY25, the yield on the government securities, especially on the 10-year benchmark bond eased around 54 basis points (Bps) due to inflows from foreign funds, better inflation trajectory and higher demand from long term investors such as pension funds, insurance companies and EPFO.

The 10-year benchmark government bond, which was trading at 7.22 percent in the start of this fiscal year, has eased to 6.68 percent in January, 2025.

Experts also believe theta considering the higher interest from the long term investors, the central government with the central bank may announce bonds with higher maturity.

“The 30 year issuance experiment have been paying off in terms of demand. This will continue,” said Debopam Chaudhuri, Chief Economist at Piramal Enterprises.

However, few believe the composition will not change considering the large issuance by state governments in longer tenure space.

“We don’t expect change in distribution as state government issuances are also there. The issuances from states which tend to be longer tenure, is estimated at INR12tn in FY26 (gross SDL issuance), assuming state government deficit of 3% of GSDP,” said Gaura Sengupta, Economist at IDFC First Bank.