Govt’s market borrowing plans for FY26 appear well-placed to support fiscal policy: SBI Report

06 Feb 2025 Evaluate

The State Bank of India (SBI) in its latest report has said that the government’s market borrowing plans for the financial year 2025-26 (FY26) appear well-placed to support fiscal policy while complementing monetary policy. For FY26, the report noted that the government has budgeted gross market borrowing through dated securities at Rs 14.8 lakh crore, while repayments are estimated at Rs 3.3 lakh crore.

This brings net market borrowing to Rs 11.5 lakh crore, which is about 73 per cent of the fiscal deficit. The net borrowing figure is higher than the Rs 10.5 lakh crore in the previous budget. Additionally, the government has announced a switch of Rs 2.5 lakh crore, meaning that it will replace some older securities with new ones. However, the report clarified that this will not have any impact on the overall fiscal situation. It stated at the state level, gross borrowing is expected at Rs 10.9 lakh crore, while repayments are pegged at Rs 3.7 lakh crore.

This results in net borrowing of Rs 7.2 lakh crore. When combined with central government borrowing, the total net borrowing of the Centre and states together comes to Rs 18.7 lakh crore. When including borrowing by public sector undertakings (PSUs), the total borrowing in FY25 stands at 6.1% of GDP. Looking ahead, it estimated that gross market borrowing over the next five years (FY27 to FY31) will be between Rs 93.8 lakh crore and Rs 95.2 lakh crore. This would average around Rs 18-19 lakh crore per year, which is higher than the current annual borrowing rate of Rs 15 lakh crore. Given the rising borrowing requirements, it also highlighted the need for the government to explore alternative funding sources such as small savings schemes to reduce reliance on market borrowings.

Further, it said ‘Government Fiscal path for next 5 years shows challenge in diversifying the borrowing base.’ The Union Budget for FY26 has outlined different fiscal scenarios based on GDP growth trends and fiscal adjustments for the five years from FY27 to FY31. It indicated that managing the borrowing program will be challenging and that there is a need to diversify borrowing sources will be crucial for maintaining fiscal stability.

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