Centre to borrow Rs 8 lakh crore in H1 FY26; Rs 10,000 crore via green bonds

Government borrowing is a key factor influencing interest rates in the economy.

The central government will borrow Rs 8 lakh crore from the bond market during April-September of the next financial year, which is 54 percent of the Budget estimate of Rs 14.82 lakh crore for the entirety of 2025-26.

Out of this, Rs 10,000 crore will be raised through sovereign green bonds in the first half of the next fiscal.

The borrowing will be spread across various maturities, including 3, 5, 7, 10, 15, 30, 40, and 50-year government securities.

To smoothen the redemption profile, the Centre will conduct security buybacks and switching operations, while the Reserve Bank of India (RBI) has set the Ways and Means Advances (WMA) limit at Rs 1.50 lakh crore for H1 to manage temporary mismatches in government accounts.

Additionally, the government plans to borrow Rs 19,000 crore weekly via Treasury bills in the first quarter (Q1) of FY26, with over 26 percent of total market borrowings to be raised through 10-year government securities.

As per usual practice, 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 securities indicated in the auction notifications.

The Centre's gross borrowing number for 2025-26 is significantly higher versus the current fiscal year, since it includes repayment of Covid-19 related loans, which will become due during the financial year.

The gross borrowing for 2024-25 is seen at Rs 14.01 lakh crore.

In net terms, however, borrowings through the bond market have been pegged lower at Rs 11.54 lakh crore (or 3.2 percent of GDP) for FY26 versus Rs 11.63 lakh crore in 2024-25.

The government's borrowing is a key factor influencing interest rates in the economy. A higher-than-expected borrowing requirement can push up bond yields for both sovereign and corporate issuers, while lower borrowing tends to ease interest rates.

Funds are raised through instruments like bonds and Treasury bills by the government to finance its expenditure on public services.