State borrowings to hit Rs 14 lakh crore in FY2027, says ICRA report

State governments are set to raise Rs 13.4-14 lakh crore in FY2027, a 5-9% increase, an ICRA report says. Net SGS issuance is pegged at Rs 9.2-9.7 trillion. RBI has set Q1 borrowing at Rs 2.5 trillion, with a new benchmark strategy.

State governments are expected to raise between Rs 13.4 lakh crore and Rs 14 lakh crore in the current financial year FY2027, marking a growth of 5 to 9 per cent compared to the previous year, according to a report by ICRA.

State Borrowing Projections for FY2027

The report noted that after accounting for redemptions of Rs 4.2 trillion in FY2027, the net State Government Securities (SGS) issuance is estimated to be in the range of Rs 9.2-9.7 trillion (1 trillion = 1 lakh crore). This reflects a year-on-year growth of 1 to 8 per cent compared to Rs 9.0 trillion in FY2026". It stated, "ICRA forecasts the gross SGS issuance in FY2027 in a range of Rs. 13.4-14.0 trillion (5-9 per cent YoY growth), up from Rs. 12.8 trillion in FY2026".

RBI's Q1 Borrowing Plan and New Strategy

The Reserve Bank of India has already outlined borrowing plans for the first quarter of FY2027. The central bank has pegged the gross SGS issuance at Rs 2.5 trillion for Q1 FY2027, which is 26.7 per cent higher on a year-on-year basis.

Benchmark Issuance Strategy (BIS) Explained

A key feature of the borrowing strategy this year is the Benchmark Issuance Strategy (BIS), introduced by the RBI on a pilot basis. Under this framework, nine states will collectively borrow Rs 1.5 trillion by issuing securities in standardised maturity buckets. The aim of this approach is to develop a more structured SGS yield curve over time, which will help improve liquidity and transparency in state government borrowings.

Challenges and Recommendations

However, the report pointed out that for the BIS to be effective, actual issuance by the participating states must align closely with the indicated borrowing amounts in the benchmark maturity buckets. In recent years, there has been a noticeable gap between the indicated and actual SGS issuance in the first quarter, which has limited the effectiveness of such strategies.The report suggested that this gap could be reduced if states submit required information more quickly to the Government of India for determining their borrowing limits. Faster vetting, approval and communication of borrowing limits by the Centre could also help streamline the process. (ANI)(Except for the headline, this story has not been edited by Asianet Newsable English staff and is published from a syndicated feed.)