Prime Minister Narendra Modi’s government plans to sell a record amount of bonds in the coming fiscal year, a move that risks adding further pressure to local debt markets amid waning demand.
New Delhi plans to borrow 17.2 trillion rupees ($187 billion) in the year starting April 1, Finance Minister Nirmala Sitharaman said in her budget speech on Sunday. That represents a 16% increase from the current fiscal year and is higher than the 16.5 trillion rupees estimated in a Bloomberg News survey.
The increase may pressure sovereign bond yields, which are near the highest in almost a year amid heavy issuance by state governments and softening demand from buyers including pension and insurance funds. Rising financing costs risk worsening strain on an economy grappling with steep US tariffs, while the central bank has limited room to cut interest rates further to support growth.
The government plans a lower fiscal deficit of 4.3% of the gross domestic product for the next fiscal year, compared with 4.4% for the current year.
Net borrowing, which strips out redemptions, is estimated to be 11.7 trillion rupees in the next fiscal year, which is largely in-line with the current year’s 11.5 trillion rupees.
The 10-year yield rose to 6.73% last week, the highest since March 2025, weighed by rising state bond sales amid increased welfare spending.
The 10-year yield may rise to 6.75% on Monday as the gross borrowing number came in higher than expected, said Gaura Sen Gupta, an economist at IDFC First Bank Ltd. The surge in borrowing comes at a time when bond-market demand has been subdued, leaving the RBI’s open market operations as “the only anchor” for the market, she added.
The Reserve Bank of India’s foreign-exchange interventions — which involve selling dollars — have also tightened liquidity in the banking system, partly weighing on demand for bonds.
To offset that, the central bank has stepped up bond purchases to inject cash into the banking system, with yields still near levels seen before last year’s 125 basis points of rate reductions.
The central bank is due to review its monetary policy on Feb. 6.
–With assistance from Bhaskar Dutta and Siddhi Nayak.
Disclaimer: This report is auto generated from the Bloomberg news service. ThePrint holds no responsibility for its content.
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