States' Market Borrowing for Fiscal Deficits Reaches 76.3% in FY26, Reports RBI
States' mkt borrowing share in deficit funding rises to 76.3% in FY26: RBI
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In the fiscal year 2025-26, states in India increased their market borrowing share for financing gross fiscal deficits to 76.3%, up from 71.8% the previous year. They raised ₹12.76 trillion through state government securities, despite rising yields and spreads.
- 01States raised ₹12.76 trillion through state government securities in FY26, compared to ₹10.73 trillion in FY25.
- 02The weighted average cut-off yield on SGS issuances increased to 7.32% in FY26 from 7.20% in FY25.
- 03The average interstate spread on new 10-year SGS issuances rose to 8 basis points from 4 basis points a year ago.
- 04The RBI plans to pilot a Benchmark Issuance Strategy for market borrowings starting in FY27, aimed at improving transparency.
- 05The central government remained in surplus for most of FY26, utilizing ways and means advances only once.
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According to the Reserve Bank of India's (RBI) annual report, states in India significantly increased their reliance on market borrowings to finance gross fiscal deficits in the fiscal year 2025-26. The share of market borrowings rose to 76.3%, up from 71.8% in the previous year, with states raising ₹12.76 trillion through state government securities (SGS) compared to ₹10.73 trillion in FY25. The number of issuances reached 1,055, including 217 re-issuances, with gross market borrowings at 95.1% of the quarterly calendar estimates. The weighted average cut-off yield on SGS increased to 7.32%, and the spread over central government securities widened to 50 basis points. The RBI is set to introduce a Benchmark Issuance Strategy on a pilot basis for select states in FY27 to enhance market transparency. Overall, the borrowing programs were successfully completed despite global financial volatility.
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The increased reliance on market borrowings may lead to higher interest rates for future borrowings, affecting state budgets and public spending.
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