New Delhi: The Union Budget 2026–27 has set the bond market on edge after the Centre announced a record gross borrowing of ₹17.2 lakh crore for the next financial year, a figure not only higher than last year’s level but also above most market expectations. The sharp jump in borrowing has intensified concerns over bond supply, yields and near-term market stability, even as policymakers reiterate commitment to fiscal consolidation.
According to Budget documents, the government’s total borrowing will rise from ₹14.61 lakh crore in the current financial year to ₹17.2 lakh crore in FY27—an increase of nearly 17%. Net borrowing is projected to climb to ₹11.73 lakh crore, reflecting the continued reliance on debt to fund capital expenditure and priority spending amid a challenging global environment.
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The announcement exceeded the Street’s pre-Budget estimates. Market participants had largely pencilled in borrowing in the ₹16–17.5 lakh crore range, with the median expectation closer to ₹16.3 lakh crore. The higher-than-anticipated number has therefore triggered fresh worries about the ability of the bond market to absorb such a large supply without a rise in yields.
Yield pressure back in focus
Government bond yields had already been trending higher in recent months due to sustained borrowing by both the Centre and states. Traders now fear that the additional supply could push yields further up when markets reopen, particularly at the benchmark 10-year segment. Elevated yields raise borrowing costs across the economy, influencing everything from bank lending rates to corporate funding and mortgage costs.
Bond dealers said the concern is not just the headline borrowing figure, but the persistence of heavy issuance through the year. A prolonged supply overhang could keep yields elevated for longer, even if demand from long-term investors remains steady.
RBI support, but limits remain
The Reserve Bank of India has taken multiple steps in recent months to stabilise the bond market, including large-scale bond purchases and liquidity management operations such as forex swaps. These measures have helped cushion volatility, but market participants caution that central bank support alone may not fully offset the pressure from record issuance.
Analysts said the bond market’s trajectory in the coming quarters will depend heavily on how actively the RBI manages liquidity and whether it signals comfort with higher yields or steps in more aggressively to cap them.
Mixed expert assessment
Fixed-income specialists broadly agree that the borrowing plan raises near-term challenges, but views diverge on the medium-term impact. Some warn that the absence of strong demand-boosting measures for bonds in the Budget could keep yields under pressure. Others argue that India’s improving macro fundamentals and credible fiscal roadmap may help contain risks.
The government has reiterated its commitment to fiscal discipline, targeting a fiscal deficit of 4.3% of GDP in FY27 and aiming to bring the debt-to-GDP ratio down to around 55.6%. These targets are intended to reassure investors that the borrowing spike is part of a calibrated glide path rather than a structural shift towards fiscal laxity.
What it means for investors
For bond investors, the environment points to continued volatility. Higher yields can create mark-to-market losses in the short term but may also offer better entry points for long-term investors. Market participants say demand for high-quality corporate bonds could remain resilient, while strategies combining income generation with limited interest-rate risk may gain favour.
About the author — Suvedita Nath is a science student with a growing interest in cybercrime and digital safety. She writes on online activity, cyber threats, and technology-driven risks. Her work focuses on clarity, accuracy, and public awareness.
