Net borrowing stays at Budget level, signalling fiscal prudence amid pressures: FinMin sources

Fresh updates from the financial markets indicate that The central government's decision to keep net market borrowings for fiscal deficit financing at the Budget level, despite emerging fiscal pressures, signals its commitment to the path of fiscal prudence laid out in the Union Budget, sources in the Ministry of Finance stated on September 25.

"Net market borrowings (market borrowings for fiscal deficit financing) is kept at the budget marks, implying that in spite of the incipient fiscal pressures, Government is committed to the path of fiscal prudence laid out in the budget," the sources stated.

For FY27, the government had budgeted net market borrowings from dated securities at Rs 11.7 lakh crore, while gross market borrowings were pegged at Rs 17.2 lakh crore. The fiscal deficit was budgeted at 4.3 percent of GDP.

The comments came after the government announced a Rs 7.86 lakh crore gross market borrowing programme for the second half of FY27. The full-year gross market borrowing through dated securities is now anticipated at nearly Rs 16 lakh crore.

The government's focus on longer-dated securities in the second-half borrowing programme will additionally help gain the weighted average maturity (WAM) of its debt, which had declined during the first half of the financial year, the sources stated.

"The focus on the long end will help us gain our Weighted Average Maturity (WAM) which had fallen during H1. A longer WAM will help reduce the roll-over risk," the sources stated.

Under the H2 borrowing programme, 26.3 percent of the borrowing will be through 10-year securities, while 17.6 percent will be through 15-year securities. Securities with maturities of 30, 40 and 50 years will account for another 28 percent of the programme.

The government is additionally using switches and buybacks to manage its debt redemption profile and avoid adding additional pressure on the market, the sources stated.

"Government is managing its debt in the most prudent manner by resorting to switches/buybacks etc and is aiding the market by not adding any additional pressure," the sources stated.

The government had already reduced its gross market borrowing estimate from the Rs 17.20 lakh crore budgeted level to Rs 16.09 lakh crore after accounting for switches of government securities in the first-half borrowing plan.

The H2 borrowing programme of Rs 7.86 lakh crore will be conducted through 23 weekly auctions and will include securities with maturities ranging from three years to 50 years. The programme includes Rs 15,000 crore of Sovereign Green Bonds.

Separately, the government anticipates to borrow Rs 23,000 crore per week through Treasury Bills during the third quarter of FY27 across 13 auction weeks. The RBI has set the Ways and Means Advances limit for H2 FY27 at Rs 50,000 crore.

The government's fiscal consolidation stance comes against the backdrop of emerging expenditure pressures.

Total expenditure in April-July stood at Rs 17.62 lakh crore, or 32.9 percent of the Budget Estimate for the full year, compared with 30.9 percent in the year-ago period.

Spending on major subsidies, including fertiliser, food and petroleum, stood at Rs 1.54 lakh crore during the period, against Rs 1.14 lakh crore last year.

Urea subsidy alone stood at Rs 66,058.60 crore, compared with Rs 41,927.11 crore a year earlier. The spending is already around 57 percent of the Budget Estimate for the full fiscal.

At the same time, during April-July FY27, the fiscal deficit stood at Rs 4.55 lakh crore, or 26.8 percent of the full-year target. In the year-ago period, it stood at Rs 4.68 lakh crore, or 29.9 percent of the target.