NEW DELHI: The Centre has managed to save around Rs 75,000 crore in interest cost due to its focus on transparency and prudent fiscal management between FY20 and FY24 which moderated yields of the government securities (G-secs).
The weighted average yield of fresh borrowing of the Centre declined from high of 8.42 % in 2013-14 to 6.96 % in 2024-25 as of February 10, 2025.
The yield reduction-induced saving was huge around Rs 75,000 crore during FY20 and FY24, an official told FE.
The interest saving helped the Centre contain the committed revenue expenditure, which is already very high. The interest cost of the Centre is likely to rise to 25.2% of the budget size in FY26 from 24% in FY25 revised estimate, reflecting the surge in accumulation of debt after the Covid pandemic.
However, sound fiscal management, including recognition of off-budget liabilities, clearance of subsidy arrears, and just-in-time release of funds for schemes, improved the market trust in the government’s budget parameters. Better cash management also reduced the borrowing requirement compared to what it would have been in the status quo scenario, officials reckon.
The Centre reduced the outlay on centrally sponsored schemes for the current financial year by a whopping Rs 91,000 crore or 18% of the budget estimate for the schemes due to the discovery of Rs 1.6 lakh crore unspent balances with them from previous transfers, reflecting a lack of absorptive capacity in states.
The unintentional savings in the schemes freed up the Centre’s resources for other productive purposes such as the buyback of dated securities worth Rs 88,000 crore to curb burgeoning interest costs. The buyback helped the Centre in interest saving of about Rs 5,000 crore, the official said.
In addition to reduced borrowing costs, the Centre was able to mitigate rollover risks. The average maturity of fresh issuances of G-Sec has increased from 14.49 years in 2020-21 to 20.73 years in 2024-25.
The states and the private sector have benefitted from the fiscal consolidation of the Centre. The yields on the Centre’s G-sec which are low serve as a benchmark for determining yields for borrowings made by states and the private cost by reducing their borrowing costs.
The Centre had off-Budget liabilities close to Rs 6.7 trillion by end-FY21. It brought about Rs 5 trillion or 75% of such liabilities into the balance sheet in FY21-FY22. Mainly, the government took over the Rs 4.27 trillion extra-budgetary resources (EBRs) raised by the Food Corporation of India towards food subsidy arrears during FY17-FY21 from the National Small Saving Fund (NSSF). Fertiliser subsidy arrears of another Rs 67,000 crore were also cleared by the Centre simultaneously.
Source: The Financial Express
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