India’s Fiscal Borrowing Plan for FY 2025-26

The Ministry of Finance of India has revealed its borrowing strategy for the first half of the financial year 2025-26. This plan aims to raise Rs 8 lakh crore, which constitutes 54% of the total market borrowing target of Rs 14.82 lakh crore for the entire year. A notable aspect of this strategy is the inclusion of Sovereign Green Bonds (SGrBs) to finance environmentally sustainable projects.

Sovereign Green Bonds Initiative

The government plans to raise Rs 10,000 crore through SGrBs. These bonds are designed to support projects that have positive environmental impacts. This initiative reflects India’s commitment to sustainable development and climate change mitigation.

Maturity Structure of Borrowings

The borrowing will occur through 26 weekly auctions. The securities will have varied maturities ranging from 3 to 50 years. The distribution of borrowings across different maturities is as follows – 3-year (5.3%), 5-year (11.3%), 7-year (8.2%), 10-year (26.2%), 15-year (14.0%), 30-year (10.5%), 40-year (14.0%), and 50-year (10.5%). This diversified maturity structure helps manage interest rate risks and aligns with the government’s financial strategy.

Debt Management Strategy

To ensure efficient debt repayment, the government plans to buy back or switch securities. This strategy aims to smoothen the redemption profile, thus enhancing the overall management of public debt. The government has also reserved the right to retain an additional Rs 2,000 crore per security in response to strong market demand.

Treasury Bills Issuance

In addition to long-term securities, the government will issue Treasury Bills (T-Bills) worth Rs 19,000 crore weekly during the first quarter of FY26. This will include Rs 9,000 crore in 91-day T-Bills, Rs 5,000 crore in 182-day T-Bills, and Rs 5,000 crore in 364-day T-Bills. T-Bills are short-term instruments that help manage liquidity and cash flow.

Ways and Means Advances Limit

To address temporary cash flow mismatches, the Reserve Bank of India (RBI) has set the Ways and Means Advances (WMA) limit at Rs 1.50 lakh crore for the first half of the financial year. This facility provides the government with short-term funding to meet its immediate financial needs.

Implications for the Economy

This borrowing plan indicates the government’s proactive approach to funding its expenditures while managing debt responsibly. The inclusion of green bonds marks a shift towards sustainable financing. The structured maturity profile aids in reducing refinancing risks and stabilising the fiscal environment.

Questions for UPSC:

1. Examine the impact of Sovereign Green Bonds on India’s renewable energy sector.
2. Discuss the significance of Treasury Bills in managing government liquidity.
3. Critically discuss the role of the Reserve Bank of India in regulating fiscal policies.
4. With suitable examples, analyse the relationship between government borrowing and economic growth.

Answer Hints:

1. Examine the impact of Sovereign Green Bonds on India’s renewable energy sector.

1. Sovereign Green Bonds (SGrBs) finance projects aimed at reducing carbon emissions and promoting renewable energy.
2. They attract both domestic and international investors interested in sustainable projects, enhancing funding availability.
3. Green bonds can stimulate innovation and technology adoption in the renewable sector.
4. India’s commitment to climate goals is strengthened, potentially leading to increased global partnerships.
5. The impact can also be seen in job creation within the renewable energy sector as projects are funded and developed.

2. Discuss the significance of Treasury Bills in managing government liquidity.

1. Treasury Bills (T-Bills) are short-term securities that provide the government with immediate funds for operational needs.
2. They help in managing cash flow mismatches by providing liquidity during periods of financial shortfall.
3. T-Bills are considered safe investments, attracting a wide range of investors and ensuring steady demand.
4. The issuance of T-Bills allows the government to meet short-term obligations without affecting long-term debt management.
5. They play important role in monetary policy implementation by influencing interest rates and liquidity in the economy.

3. Critically discuss the role of the Reserve Bank of India in regulating fiscal policies.

1. The Reserve Bank of India (RBI) regulates monetary policy, which complements fiscal policy set by the government.
2. It manages inflation and ensures economic stability through interest rate adjustments and liquidity management.
3. The RBI’s role includes overseeing government borrowing and implementing the Ways and Means Advances (WMA) facility.
4. It provides guidance on fiscal discipline, influencing government spending and borrowing strategies.
5. The RBI also plays a key role in maintaining financial market stability, essential for effective fiscal policy execution.

4. With suitable examples, analyse the relationship between government borrowing and economic growth.

1. Government borrowing can finance infrastructure projects, which are critical for economic development (e.g., roads, bridges).
2. Increased public spending can stimulate demand, leading to higher economic growth rates (e.g., during economic downturns).
3. Borrowing can facilitate investments in education and health, enhancing human capital and productivity.
4. However, excessive borrowing may lead to higher debt levels, affecting investor confidence and economic stability.
5. Examples include Japan’s post-war borrowing leading to rapid growth and the potential risks seen in countries with high debt-to-GDP ratios.