Indian government bonds are likely to face the last bite of Long Covid the next fiscal as repayment of debt issued during the pandemic will jack up the gross borrowings in FY26, alerted a senior official.
The Centre has to square off an outstanding of more than Rs 4 lakh crore on government securities in the next fiscal year.
"You may see higher gross market borrowings next fiscal, but our net borrowings will be contained. This is because substantial loans were taken by the Government of India during Covid through the bond market due to low receipts back then. A part of those redemptions is due next fiscal," this official said.
The gross market borrowing for 2024-25 has been pegged at Rs 14.01 lakh crore, drastically lower than Rs 15.43 lakh crore borrowed in FY24.
The government’s borrowings from the market through bonds shot up during the Corona virus pandemic as expenditure mounted and revenues dried up, resulting in a fiscal deficit of 9.2 percent of the GDP in 2020-21. That year saw the gross borrowing of the government shoot up 77 percent from 2019-20 to Rs 12.6 lakh crore as the Centre announced stimulus packages to prevent the economy from collapsing.
Since then, the borrowing number hit record highs, rising to Rs 14.21 lakh crore in 2022-23.
However, the official added, the government has taken adequate steps to even out the impact of possibly higher gross borrowings through dated securities in FY26 by conducting switches and buybacks of dated securities this financial year.
"We have engaged in buybacks of about Rs 80,000 crore in the current fiscal year, including early repayments of securities maturing next year. We have also conducted switch auctions of over Rs 1.35 lakh crore versus the budgeted Rs 1.5 lakh crore. This was to smoothen our borrowings for next fiscal," the official said.
While a buyback refers to the process of the government repurchasing bonds based on its cash position, especially when tax revenues are better than expected, to help them use excess funds to retire debt, switch auctions aid in replacing the shorter-duration sovereign securities with long-duration papers, and thereby delaying repayments.
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