India’s FY26 market borrowing may be higher on pandemic-related redemptions

The government is laying the groundwork for a likely increase in market borrowing in the next financial year. Sources indicate that higher gross market borrowing can be expected in FY26 due to an increase in redemptions when part of the COVID-19 pandemic borrowings become due for repayment.

Consequently, the government, in consultation with the  Reserve Bank of India (RBI), has already conducted buybacks and switches of dated securities. In FY25, the government executed buybacks worth ₹80,000 crore and switches totaling ₹1.35 lakh crore, against ₹1.5 lakh crore worth of G-secs to be switched in the current fiscal. Together, these measures have addressed ₹2.15 lakh crore worth of COVID-related loans to date.

Sources say these steps aim to ease market pressure in FY26 by preventing a large concentration of repayments associated with COVID-related borrowing.

When asked how much more buybacks the government will conduct this fiscal, sources indicate that the government may not pursue further buybacks for now, opting instead to deploy the cash elsewhere. However, this remains to be seen.

For the current financial year, the government is not planning to reduce its market borrowing, despite the possibility that its ₹11 lakh crore capex budget may miss the target. During April-September, only 37.3% of the ₹11 lakh crore capex budget has been spent.

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