Modi govt taps household savings to tackle $346 billion debt load: Report
New Delhi: Prime Minister Narendra Modi's administration is facing a record ₹29.7 trillion ($346 billion) in maturing sovereign bonds over the next five years, a legacy of pandemic-era borrowing and infrastructure spending. To manage this burden, the Reserve Bank of India (RBI) and the government are swapping maturing debt with longer-term securities, Bloomberg reported.
Households play a key role
A growing reliance on households is driving this refinancing effort. Households are channelling their savings into insurers, which are increasingly investing in long-term sovereign bonds.
The demand has grown so much that the head of Life Insurance Corp. of India (LIC) even proposed issuing 100-year bonds.
“Households are seeking investment avenues beyond traditional bank deposits, opting for instruments with longer-term horizons,” said Bloomberg quoted India Ratings director Soumyajit Niyogi as saying.
This trend is reshaping India’s government securities market, he added.
Debt swaps gain traction
The finance ministry has set a record target of ₹2.5 trillion for debt swaps in the fiscal year beginning April 1. With the insurance sector expanding at 12-13% annually, this goal appears achievable, according to Vidya Iyer, head of fixed income at ICICI Prudential Life Insurance, which managed ₹3.1 trillion in assets as of December.
The strategy has already paid off. In the September quarter, the average yield on new issuances fell by 20 basis points to 6.9%, while maturity periods extended to 20.5 years, government data showed.
Insurers drive demand for long-term bonds
Insurers, needing long-duration assets to match their liabilities, have ramped up participation in these bond swap operations, said Ajit Banerjee, chief investment officer at Shriram Life Insurance Ltd. Given the scarcity of high-quality long-term debt instruments, demand for government bonds will remain strong, he added.
Govt shifts focus to long-term borrowing
To capitalise on this trend, the government has increased its issuance of long-term bonds. In the current fiscal year ending March 31, 38% of debt issuances were for bonds maturing in 30 years or more, compared to 25% four years ago.
The borrowing plan for April-September is set to be unveiled this week, outlining how New Delhi plans to manage its record debt load while leveraging household-driven demand for long-term securities.
With a record ₹29.7 trillion in sovereign bonds maturing, India is turning to households via insurers
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