States Front-load Borrowing Plans, But Approvals May Delay Issuance
Indian states have lined up an unusually heavy borrowing calendar for the first quarter of FY2027, but the actual pace of issuance may depend less on intent and more on how quickly New Delhi clears its annual borrowing permissions, according to a report by Icra.The Reserve Bank of India has pegged gross State Government Securities issuance at Rs 2.5 trillion for Q1 FY2027, up 26.7 per cent year-on-year from Rs 2.0 trillion in the same quarter last year. However, Icra cautions that in recent years, actual issuances in the first quarter have consistently lagged behind indicated borrowing plans, largely due to delays in the communication of final borrowing limits by the Government of India.
“Actual SGS issuance in Q1 FY2027 relative to the indicative level will depend upon timing of the communication of the final borrowing permission by the GoI to the states,” Icra said.
States are required to submit detailed fiscal data at the start of the year, including repayment schedules, pension contributions, off-budget borrowings and guarantee redemption fund positions, based on which the Centre determines their annual borrowing ceiling. This process typically concludes several weeks after the Reserve Bank releases the indicative Q1 auction calendar, creating a mismatch between planned and permitted borrowing in the early weeks of the financial year.
Icra estimates net market borrowing in Q1 FY2027 at Rs 1.8 trillion after adjusting for redemptions of Rs 696 billion, a steep 48.1 per cent rise over actual net issuance of Rs 1.2 trillion in Q1 FY2026. Whether this materialises will hinge on administrative timelines, the pace of state expenditure, release of central capex loans and tax devolution instalments in June.
The borrowing surge is also geographically concentrated. West Bengal, Bihar and Uttar Pradesh account for nearly two-thirds of the incremental Rs 537 billion borrowing indicated for Q1 FY2027 compared with last year. West Bengal alone has increased its planned issuance by Rs 140 billion, Bihar by Rs 120 billion and Uttar Pradesh by Rs 108 billion.
Icra noted that higher indicated borrowing by Kerala, Tamil Nadu and West Bengal may be linked to Assembly elections scheduled in April 2026.
Interestingly, Karnataka has indicated borrowings of Rs 54 billion in Q1 FY2027 despite having skipped first-quarter borrowings for the past five years. In FY2026, the state had indicated Rs 100 billion for Q1 but did not borrow. Icra said past trends suggest Karnataka may again defer its borrowing to the second half of the year.
The quarter’s borrowing is also unusually back-loaded within the quarter itself. States plan to raise Rs 883 billion in May 2026 alone, nearly 35 per cent of the entire Q1 plan, through four weekly auctions. April is slated for Rs 811 billion and June for Rs 851 billion.
A structural change is also underway in how states issue debt. The Reserve Bank has introduced a Benchmark Issuance Strategy on a pilot basis for nine states — Andhra Pradesh, Bihar, Chhattisgarh, Kerala, Madhya Pradesh, Maharashtra, Rajasthan, Telangana and Uttar Pradesh. These states together plan to raise Rs 1.5 trillion in Q1 through predefined maturity buckets ranging from two years to over 25 years.
Icra said the move is expected to improve liquidity, transparency and the development of a state-level yield curve, provided actual issuances align with the indicated benchmark buckets. Faster adoption by other large borrowing states will be key to the success of this framework.
For the full year, Icra forecasts gross SGS issuance between Rs 13.4 trillion and Rs 14.0 trillion in FY2027, up from Rs 12.8 trillion in FY2026. With redemptions estimated at Rs 4.2 trillion, net issuance is expected between Rs 9.2 trillion and Rs 9.7 trillion.
The borrowing outlook is framed by a tighter fiscal regime. The Government of India has accepted the 16th Finance Commission’s recommendation to fix the states’ net borrowing limit at 3.0 per cent of GSDP for FY2027–FY2031, with no carry-forward of unutilised limits. At the same time, the Union Budget has provided Rs 2.0 trillion in interest-free capex loans to states in FY2027, up about 33 per cent from last year, over and above this borrowing ceiling.
Icra observed that state borrowings in recent years have been heavily back-ended, with over 40 per cent of annual issuances taking place in the final quarter. The agency expects this pattern to continue in FY2027 despite the front-loaded Q1 calendar.
Pages:
[1]