India will not undertake direct debt switch with RBI, top ministry official says
The Reserve Bank of India's holding of sovereign bonds due to mature next financial year will likely be treated at par with the market by the government rather than swapped for longer-dated debt, a top government official said.
The RBI holds around 1 trillion rupees ($11.5 billion) of bonds maturing next financial year, as per market estimates, and the government was expected to swap these for longer-dated debt before the budget on Saturday, a practise undertaken in earlier years that typically means a smaller gross borrowing target.
However, it did not do so this time and, as a result, the gross borrowing target for 2025-26 was raised to 14.82 trillion rupees from 14.01 trillion rupees in the current fiscal year.
"In a normal course what the government is expected to do is, go to the market, issue those bonds ... give it to the bondholders. These bondholders can be public, institutions or RBI," India's Economic Affairs Secretary Ajay Seth said on Sunday.
"The government would like to deal with that issue through a market-based operation rather than do a bilateral deal."
The government aims to conduct a switch target of 2.50 trillion rupees in the next financial year, but there is no specific amount earmarked for buybacks.
This financial year, the government bought back bonds worth around 882 billion rupees as it intended to keep as little cash as feasible, Seth said.
The government's cash position at the start of 2025-26 would dictate whether there would be any buybacks in that period, he said. ($1 = 87.1300 Indian rupees)
