India likely to cut borrowing on narrow spending window

India may cut its borrowings this year as the ongoing national elections narrow the government’s spending window by about three months, according to Mirae Asset Investment Managers India Pvt.

“We have nine months of spending this fiscal year because of elections,” and “there could be a slight cut,” Kruti Chheta, a fixed-income fund manager at Mirae, said on Bloomberg Television. “These borrowings could be added to the next fiscal year.”

India’s seven-phase election that started in April is nearing an end, with results due on June 4. The government is barred from making any new spending plans once the elections are announced, according to regulations. India plans to borrow Rs 14.1 lakh crore ($170 billion) in the current fiscal year.


Sovereign bonds have already rallied in recent weeks, boosted by a reduction in short-term borrowings, a record dividend payout by the central bank and the inclusion of Indian bonds in JPMorgan Chase & Co.’s emerging-market index in late June.

Lower bond sales may help reduce borrowing costs for the government and companies, and help boost economic growth in Asia’s third-largest economy.

The yield on the benchmark 10-year bond has eased by 25 basis points from this quarter’s high reached in April to 6.97% on Tuesday, the lowest since June 2023.

India has already cut its short-term borrowings via treasury bills by 600 billion rupees for the quarter. A bumper RBI dividend of Rs 2.1 lakh crore, nearly double of market expectations, has also added to hopes of lower borrowings.

Indian bond market may see heightened volatility should Prime Minister Narendra Modi’s party win a slimmer majority in the polls, according to Mirae.

“If the results aren’t close to the market consensus, but if it’s still a majority, we could see a slight volatility,” Chheta said. “In case there is a change in the regime, there will be a selloff in the markets.”