The central government is expected to borrow between Rs 16–17 lakh crore through debt securities in FY27, according to economists. The elevated supply outlook is primarily due to a sizeable Rs 5.5 lakh crore redemption profile during the year.
Market participants project the debt-to-GDP ratio to ease to around 55% in FY27, marginally down from 56% in FY26. Importantly, from FY27 onwards, the Centre will anchor fiscal consolidation to debt-to-GDP rather than the fiscal deficit.
New Fiscal Anchor
Sameer Narang, Chief Economist at ICICI Bank, said, “We expect gross borrowing to be around Rs 16 lakh crore in FY27 and net borrowing at Rs 11.6 lakh crore. Gross borrowing could rise further given the repayment schedule, unless switch operations are undertaken. Fiscal consolidation is now calibrated to debt-to-GDP, which is the new anchor. From 56% in March 2026, the ratio is targeted to fall to 50% (+/-1%) by March 2031.”
Madhavankutty G, Chief Economist at Canara Bank, stated that the RBI may conduct switch operations to ease the strain from the heavy redemption profile, thereby preventing gross borrowing from rising too sharply. He estimates gross borrowing to be around Rs 17 lakh crore.
“With nominal GDP growth likely in the 9–9.5% range, though the Budget may assume 10%, the government will need to demonstrate fiscal discipline by showing at least a 50–100 bps reduction in the debt-to-GDP ratio,” added Ranen Banerjee, Partner and Economic Advisory Leader at PwC India.
Market Dynamics
Economists at Nomura, however, expect a higher borrowing figure. “We peg gross borrowing at Rs 17.5 lakh crore for FY27, an 18% increase over FY26. The elevated supply is driven by Rs 5.5 lakh crore of maturities. We also project lower inflows from small savings and positive Treasury-bill issuance of Rs 1 lakh crore.”
Despite a cumulative 125 bps rate cut, borrowing costs remain elevated. The 10-year benchmark bond currently trades at 6.66%. Weak demand-supply dynamics, with muted appetite from domestic investors, could further pressure the bond market if gross issuance rises.
“We remain cautious on bonds given supply pressures and lack of demand. A higher-than-expected borrowing figure would have a larger impact than a lower one, with risks skewed towards the upside,” cautioned the economist. Nomura, in its note, said that for FY26, the government had pegged gross borrowings at Rs 14.82 lakh crore and net borrowings at Rs 11.54 lakh crore. In the first half of FY26, the Centre borrowed Rs 7.94 lakh crore, while the second-half borrowing plan of Rs 6.77 lakh crore is expected to undershoot Budget estimates. Overall, economists believe the government will meet its FY26 fiscal deficit target of 4.4% of GDP through expenditure consolidation.
Gaura Sengupta, Chief Economist at IDFC FIRST Bank, said, “We expect the government to aim for a fiscal deficit closer to 4.2–4.3%, in line with its consolidation track record. This would keep gross borrowing largely consistent with our estimate of around Rs 16 lakh crore for FY27.”
Market participants, however, anticipate borrowing to be slightly higher, in the range of Rs 16.5–17 lakh crore, according to a dealer at a PSU bank. “I expect gross borrowing at around Rs 16.5 lakh crore and net borrowing at Rs 11.5 lakh crore. A Rs 16 lakh crore level should keep markets comfortable, but anything above that could create challenges, especially with state borrowings still a concern,” said Rajeev Pawar, Head of Treasury at a Ujjian Small Finance Bank. He stated that at Rs 16 lakh crore, G-Sec yields are likely to remain range-bound. However, if government borrowing exceeds expectations, G-Sec yields could rise by 5–10 bps post budget.