Prudent fiscal management likely to soften G-sec yields: DEA secretary Seth

The government's prudent fiscal management may soften government securities yields and leave more funds for corporates to invest in the economy, DEA Secretary Ajay Seth has said.

In absolute terms, he said, "we will be borrowing (for FY26) less than what we intend to borrow in the current year. Even the gross borrowings are also marginally more than what it was, signalling that the government will leave enough into the market for the private sector to pick up". 

 

The government has reduced its borrowings estimate for next financial year to Rs 11.54 trillion on net basis as it expects an improvement in tax collection. However, gross market borrowings have now been revised upward to Rs 14.82 trillion from Rs 14.01 trillion estimated for the current financial year. 

The government has to borrow by issuing dated securities to meet its fiscal deficit target.

"So, I see that the fiscal consolidation this year and fiscal consolidation road map next year should rather soften the yield...there are other factors also in place," the secretary in the department of economic affairs (DEA) told PTI in an interview.

It is to be noted that softening of yield on G-secs would bring burden on interest payment on the government.

The yield on 10-year government bonds is currently hovering around 6.7 per cent.

As per the government data, the weighted average yield softened to 6.94 per cent in the second quarter relative to 7.14 per cent in first quarter of 2024-25.

The government has lowered its fiscal deficit target to 4.8 per cent of GDP for the current financial year against 4.9 per cent estimated earlier.

For the next fiscal year, the fiscal deficit has been pegged at 4.4 per cent of the GDP in line with the glide path announced in amended FRBM Act.

The government has announced a new roadmap to reduce debt-GDP ratio to about 50 per cent by March 2031 from 57.1 per cent currently.

As per the new roadmap for the next five years, the government aims to bring down the debt-GDP ratio to about 56 per cent by the end of FY26.

The glide path takes into account different scenarios for the next 5 years with debt to GDP-ratio as the anchor.