The interim budget is likely to peg gross borrowing between ₹15.1-lakh crore and ₹15.3-lakh crore for FY25, a tad lower than ₹15.4-lakh crore for FY24. Economists attribute it to the government’s intent to bring the deficit down to 4.5 per cent by FY26, which means bringing down both the deficit and borrowing.

The trend shows that 80-86 per cent of the fiscal deficit is bridged through market borrowing, and this is likely to continue during the next fiscal. At the same time, sovereign gold bonds might see an increase, while the quantum of sovereign green bonds could be at the same level in FY24, i.e., ₹20,000 crore.

Taking a cue from the RBI’s data on outstanding government Securities (G-secs), Care said that redemptions worth ₹3.68-lakh crore are expected in FY25, with nearly 53 per cent in the second half of the fiscal year. Consequently, a net borrowing of approximately ₹11.3-11.6 lakh crore is expected in FY25. Consistent with previous practices, government borrowing is likely to be frontloaded in the first half, giving States/corporates room to borrow in the latter half of the fiscal year.

Overall, a lower supply of G-secs in FY25, combined with increased demand resulting from passive inflows following India‘s inclusion in global bond indices, is expected to ease G-sec yields in the next fiscal. “A lower G-sec yield is likely to transmit to corporate issuances as well. Additionally, an anticipation of the RBI initiating policy rate cuts after the first quarter of the next fiscal year may further exert downward pressure on borrowing costs,” Care said in its research note.

In a note, HDFC Bank said there could be some increase in reliance on market borrowings in the fiscal year 2025, especially in terms of long-term bonds . “We assume that 68 per cent of the fiscal deficit could be financed through net market borrowings,” the note said. With the inclusion of domestic sovereign debt in major global bond indices, demand for domestic debt by foreign investors could see an increase. As of September 2023, FIIs owned only 1.61 per cent of outstanding Central Government debt, it added.

Government borrowings take place mainly through long-term securities with a maturity period of up to 50 years. Domestically issued debt, largely in the form of government bonds, is mostly medium- or long-term, with a weighted average maturity of roughly 12 years for central government debt.