Editorial. Borrow and spend – The Hindu BusinessLine

The Centre, in consultation with the Reserve Bank of India, will raise ₹8 lakh crore in the first half of FY26, or 54 per cent of its gross borrowing target of ₹14.82 lakh crore, to finance its fiscal deficit. This is slightly above the corresponding figure of 53.2 per cent of annual borrowing in FY25. Markets had expected a borrowing plan that was in the 56-58 per cent range, as in FY24 and FY23. Their reasons are not hard to seek.

Private investment is unlikely to gain traction for a while in FY26, as the world waits for the dust on Trump’s tariff tantrums to settle down. According to the second advance estimates of GDP released last month, government expenditure growth this fiscal is estimated at 3.8 per cent, while first half growth was just 1.7 per cent on account of election-related curbs. It is a reasonable ask that this level be raised in the emerging situation, when the economy needs a prudent fiscal boost to complement monetary policy efforts. The uptick in Q4, with growth estimated at 7.6 per cent and private consumption spending at 9.9 per cent, may not sustain.

In a situation of subdued credit offtake (11.1 per cent growth as on March 7 y-o-y), the latest government borrowing calendar may not have a crowding out effect on other borrowing for now. It will raise the planned ₹8 lakh crore over 26 weekly auctions, through bonds of tenors ranging from three years to 50 years (green bond issuances thrown into the mix). There is a bias towards short-term funds. The share of issuances in tenors of 10 years or below is over 51 per cent, against 49 per cent for borrowings in H1FY25. It is vice versa for bonds of 15-year tenor and above. Bonds of 10-year tenor account for the highest share of issuances at 26.3 per cent, against 25.6 per cent last year. An assessment by a leading private bank points to FPI (foreign portfolio investors) preference for five-year tenors (issuances increased for H1FY26), even as banks and insurance companies remain the main buyers at about 70 per cent of the incremental demand. It seems that the government wants to manage its short-term cost of borrowing, anticipating demand in this segment; long-term borrowings can be institutionally managed. As for the shape of the yield curve, it is flat (little difference between short- and long-term rates), notwithstanding growth prospects. Be that as it may, it will keep borrowing costs in check. The yield curve may normalise as the global order stabilises. Meanwhile, a growth boost in the short term could help raise the yield curve by improving growth prospects.

In order to negate the effects of a longstanding liquidity deficit which acts as a dampener to credit growth, the government should spend proactively and prudently on long-term assets. Poor utilisation of funds has been a bane of many a government department. The Centre should front-load its spending, even if it is beset by apprehensions over revenue collection in the new fiscal. That can be dealt with, once a virtuous growth cycle gets going.