Until now, the government targeted the fiscal deficit, which will be lowered to a targeted 4.4% of GDP for the year ended March 2026 from 9.2% in 2020-21.
The shift to debt-to-GDP as the key fiscal measure will result in a more modest pace of tightening, supporting growth, economists said.
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“We believe government will look to target 55% of GDP as its debt target in 2026-27,” economists from Bank of America Securities said in a note last week, against its current level of close to 57%.
This will imply a fiscal deficit range of 4.3% to 4.4% and a possible increase in the absolute amount of the budget gap, the economists said.
Deutsche Bank and Axis Bank expect a fiscal deficit of 4.25% and 4.2%, respectively, with the aim of bringing down the debt-to-GDP ratio to 50% by 2030-31, they said in reports this week. Most economists expect the government to meet its deficit target of 4.4% of GDP in the current financial year.
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MARKET BORROWINGS SET TO RISE
Economists forecast the government’s gross borrowings to rise to a record high due to large maturities of existing borrowings even as the fiscal deficit falls marginally.
They forecast gross borrowings in a range of 16 trillion rupees to 17.50 trillion rupees ($174.7 billion to $191.1 billion) against 14.6 trillion rupees in the current year.
However, the net borrowings are likely to remain unchanged at 11.5 trillion rupees, HSBC said in a note this week.
“Growth in borrowing would still be below nominal GDP growth, making it manageable,” HSBC said.
| Firm | Gross borrowing forecast (₹ trillion) | Net borrowing forecast (₹ trillion) | FY27 fiscal deficit forecast (% of GDP) |
| Nomura | 17.5 | 12.0 | 4.2 |
| ANZ | 17.0 | 11.5 | 4.2 |
| Citi | 16.8 | 11.8 | 4.3 |
| DBS | 16.5 | 12.0 | 4.3 |
| BofA | 17.0 | 12.0 | 4.3 |
| HSBC | 16.0 | 11.5 | 4.2 |
| IDFC First Bank | 16.3 | 11.3 | 4.3 |
| Kotak Bank | 16.0 | 12.0 | 4.3 |
| HDFC Bank | 16.3 | 11.3 | 4.2 |
| India Ratings | 16.1 | 10.6 | 4.3 |
| Emkay Global | 16.4 | 11.6 | 4.3 |
| QuantEco | 16.2 | 10.7 | 4.2 |
Indian bond markets have been pressured by heavy supply of federal and state government bonds at a time when demand from large buyers like insurance companies and pension funds is shrinking.
Traders expect this trend to continue if the federal gross borrowing is above 16 trillion rupees.
Nomura, which expects high gross borrowings at 17.5 trillion rupees, remains cautious on bonds, given supply pressures and the lack of demand.
It says a higher-than-expected borrowing number would likely have a larger impact on bonds than a lower surprise.
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