With India’s inclusion in global bond indices starting next financial year, the central government believes there will be greater scope for shifting to borrowings via long-term government securities (G-sec) from short-term instruments.
This change may be factored into the FY25 interim Budget.
“While this has been our focus, the inclusion of India in global bond indices gives us the opportunity to accelerate the shift towards longer tenure G-secs,” an official said, requesting anonymity.
However, the tenure of securities is not announced in the Budget and communicated to the market during the release of the half-yearly borrowing calendar in March and September.
Madan Sabnavis, chief economist, Bank of Baroda, said the shift towards long-term securities from short-term securities is pushed through by the government rather than the market.
“The government is borrowing a lot of money from the market.
"From less than Rs 10 trillion before pandemic, gross borrowings have increased to Rs 15 trillion.
"If you keep it short term, then there will be pressure for repayment, and liabilities will increase in the short run.
"With long-term securities, future generations will face the challenge of repayment,” he added.
In a “Status Paper on Government Debt” released in October last year, the finance ministry said it aims to reduce the share of short-term debt of the outstanding marketable debt stock to 11 per cent by FY25 from 12.13 per cent in FY22 to minimise risks and lower borrowing costs.
However, the Centre sees scope for increasing the share of external debt in the outstanding public debt stock to 7 per cent from 5.43 per cent during the same period.
While JP Morgan in September 2023 announced inclusion of India into its emerging markets bond index starting June 2024, Bloomberg has also proposed the country’s inclusion in its indices starting September 2024.
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