The Centre on Friday announced gross market borrowings of Rs 6.77 lakh crore, including Rs 10,000 crore through issuance of Sovereign Green Bonds, for the second half of the current fiscal year, even as it reduced the share of long-tenure bonds, deferring market sentiments.
Economic affairs secretary Anuradha Thakur told FE that the market borrowings for FY26 have been lowered by around Rs 10,000 crore to Rs 14.72 lakh crore compared with the Budget Estimates of Rs 14.82 lakh crore.
However, she said it is worth mentioning that market borrowings are only one of the sources of financing of the fiscal deficit, indicating that the shortfall in market borrowing may be made good through other borrowing tools.
“The government is committed to meeting the fiscal deficit target of 4.4% of GDP during this FY,” Thakur said.
The fiscal deficit is estimated to be Rs 15.69 lakh crore in FY26. Besides market borrowings, other sources of financing the fiscal deficit include small savings, provident funds, external debt, etc.
The H2FY26 borrowing accounts for nearly 46% of the revised gross market borrowings for the current financial year. Of course, the Centre will continue to reserve the right to exercise the greenshoe option to retain an additional subscription of up to Rs 2,000 crore against each of the securities (G-Secs) indicated in the auction notifications.
Strategy shift: Reducing ultra-long bond supply
Factoring in the lower market appetite for longer-tenure bonds (30, 40, 50 years), the Centre has reduced the share of these bonds to 29.5% in the H2FY26 borrowing plan compared with 38.6% in H2FY25.
“Based on the wider consultations with RBI and factoring in the market feedback, the share of long tenor securities (30 years and above) has been reduced by 5.1 percentage points to 29.5% of issuances in H2 from 34.6% of issuances in H1 of 2025-26,” Thakur said. This reduction has been compensated by an increase in the short-end, she added.
The market borrowing would be completed through 22 weekly auctions till March 6, 2026, as against the usual wrapping of borrowing by the end of February in previous years. That’s because the borrowing calendar has been extended by a week this year, following demand from the market to lower the weekly borrowing size.
While the weekly borrowing size was Rs 22,000 crore to 39,000 crore in H2FY25, this has been moderated to 28,000 crore to Rs 33,000 crore.
Market reaction and fiscal outlook
“I expect yield on long-term bonds to come down by 2-3 bps. However, the yield on the 10-year benchmark bond will likely inch up due to increased supply,” said Rajeev Pawar, head of treasury, Ujjivan Small Finance Bank. “Investor demand for ultra-long bonds has reduced from insurance and pensions. The lower concentration of ultra-long bonds could result in some flattening of the curve,” said Gaura Sengupta, chief economist, IDFC FIRST Bank.
“The reduction in green bonds was also based on market feedback… as demand for green bonds has been lower. Moreover, the government hasn’t got the premium on green bonds,” Sengupta said.
In H2FY26, the market borrowing will be spread over 3, 5, 7, 10, 15, 30, 40 and 50-year securities. The share of borrowing under different maturities will be: 3-year (6.6%), 5-year (13.3%), 7-year (8.1%), 10-year (28.4%), 15-year (14.2%), 30-year (9.2%), 40-year (11.1%) and 50-year (9.2%).