States step up borrowing in July as capex drive gains pace
This was well above the ₹ 68,383 crore allotted in July last year, according to the latest data from the Reserve Bank of India (RBI).
The data showed that state borrowings, in terms of allotments through SDL, climbed steadily through the first four months of FY26, from ₹ 52,870 crore in April to ₹ 64,722 crore in May and ₹ 82,207 crore in June, before peaking in July.
The borrowing surge breaks from the usual pattern, where states typically backload SDL issuances in the second half of the fiscal year.
Typically, state governments tap low-cost or interest-free funds in the first half of the fiscal year, including their tax revenues, central tax devolution, GST compensation, and interest-free loans from the Centre, before turning to costlier market borrowings.
Instead, with the Centre accelerating infrastructure outlays and global headwinds threatening the economic outlook, states now appear to be front-loading borrowings to kickstart projects early.
The trend contrasts sharply with the same period last year, when monthly borrowings were far lower.
To be sure, state governments raised ₹ 2.97 trillion through market borrowings between April and July in FY26, up sharply from ₹ 2.14 trillion in the same period last year, underscoring an aggressive front-loading of debt to fund development and infrastructure projects.
SDLs are bonds issued by state governments to raise funds for development projects and manage fiscal gaps. Proceeds typically finance infrastructure, welfare schemes, and other public spending priorities.
Auctioned by the RBI on behalf of states, SDLs are a key source of long-term financing for subnational budgets and a vital tool for sustaining state-led growth initiatives.
As things stand, state governments and Union territories are projected to raise ₹ 2.87 trillion through SDLs in the July–September quarter, higher than the ₹ 2.6 trillion in the year-ago period, the RBI data showed.
Experts said the move signals a coordinated fiscal push to anchor growth amid geopolitical and trade-related uncertainties, as well as weak private-sector capital expenditure.
At the latest SDL auction held on 5 August, states were allotted a total of ₹ 26,750.018 crore.
Maharashtra led the latest SDL auction, mobilising a substantial ₹ 6,000 crore, showcasing robust investor confidence in its long-term bond issuances.
Following closely, Andhra Pradesh, Madhya Pradesh, and Telangana each mobilised ₹ 5,000 crore, reflecting their strong market participation and diverse tenors across securities.
Tamil Nadu secured ₹ 4,000 crore, demonstrating steady demand for its mix of short- and long-term bonds.
Telangana, capitalising on consistent investor interest, was allotted ₹ 5,000 crore across its suite of securities with maturities ranging from 19 to 24 years.
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Indian Express
an hour ago
- Indian Express
Around $30-35 billion of India's merchandise exports to America at risk from Trump's tariffs, says UBS Chief India Economist
US President Donald Trump's decision to impose a total tariff of 50 per cent on India has put at risk $30 billion-$35 billion worth of New Delhi's exports to the world's largest economy, according to Tanvee Gupta Jain, UBS' Chief India Economist. Consequently, India — whose merchandise exports to the US in 2024 totalled $87.3 billion, resulting in a surplus of $45.8 billion — faces the risk of losing almost a full percentage point from its GDP growth over two years, she said. In an interview with The Indian Express Siddharth, Jain also shed light on the possibility of India reducing its purchase of Russian oil and the Indian economy's growth and inflation prospects in light of the RBI's latest monetary policy decision. Edited excerpts: US tariff on India is now 50 per cent, with a three-week waiting period. Purely in terms of the trade relations, what is your assessment of the impact? US President Donald Trump has now announced an additional 25 per cent tariff on India for buying oil from Russia, taking the total tariffs to 50 per cent. This additional tariff is effective from August 27, that is 21 days after the executive order. There are a few sectors including pharma, smartphones, (that) are currently under section 232 investigations and are exempted from tariffs. The exempted sectors account for $24 billion or around 30 per cent of India's total goods exports to the US of $87 billion. The way we look at the impact of the tariffs is as follows: we note the US accounts for $87 billion or 20 per cent of India's goods export, or about 2.2 per cent of India's GDP. We multiply the new tariff rate with trade exposure to the US to get a 'GDP at risk' measure. Further assuming a -1 price elasticity, we estimate drag from the proposed tariffs that is 25 per cent effective from today and an additional 25 per cent effective from August 27 versus our current baseline to be 35 basis points (bps) in 2025-26 and 60 bps in 2026-27. We would stress that our estimates are subject to substantial uncertainty as the trade negotiations with the US are ongoing. In addition, other considerations for our growth forecast include how global growth pans out and if counter-cyclical policy support could help support domestic demand momentum in the face of tariff-related uncertainties. These are just scenarios that we have. We are not yet changing our estimates as a lot will depend on how the negotiations happen over the coming weeks and months. So, the exports at risk from the tariffs are roughly $56 billion or so. Do you have an estimate of how much that could fall by if the 50 per cent tariff stays in place? I would say the exports at risk out of India's $87 billion of goods exports to the US, taking into account the exemptions, are roughly around $30 billion-$35 billion. The 21-day pause gives some time for the negotiations to continue later this month. Do you see any sign of a deal with the US resulting in a meaningfully lower tariff rate without India conceding ground on its two non-negotiables: agriculture and dairy? Taking lessons from India's Asian peers that have negotiated a trade deal with the US — including Vietnam, Indonesia, the Philippines and Japan — we expect India to open its market to the US, implying zero tariffs on American goods. Like its peers, we expect India to commit to increasing purchases of energy and defence equipment from the US to bring down its goods trade surplus of $46 billion as of 2024. However, opening up agriculture and dairy sectors to the US remains a key hurdle. These low value-added sectors could impact Indian farmers' livelihoods — especially small ones engaged in dairy production. India's dairy sector accounts for 3 per cent of nominal gross value added and provides a living for over 80 million dairy farmers. In our base case, we would expect a trade deal to happen sooner than later as any lingering uncertainty is a drag to overall growth. As per media reports, the US trade delegation is likely to visit India sometime in the last week of August as part of this discussion. So, we are hoping that something comes out of it. It is interesting that the start date of these additional tariffs, August 27, is a couple of days after the next round of talks between the US and India. India's trade with Russia is clearly an issue for the US. Can India source oil from other countries without a meaningful impact on domestic fuel prices, overall inflation, and the government's finances? India is a net oil importer and we import almost 88 per cent of our oil requirement. So clearly, movements in oil prices will have a very important bearing on our macro stability risks, including current account, inflation, and the government's finances. Hence, it will impact the overall economic growth prospects. Before the Russia-Ukraine conflict began in 2022, Russia's share in India's oil imports was 2 per cent. This rose to 36 per cent in 2024-25. As per UBS' oil analysts, Indian refineries are typically complex because the units are optimised to process the heavier Russian Ural. Further, the price advantage of the Ural crude to Brent, which was very favourable for India when the conflict began in 2022, has now reduced to $2-3 per barrel on a landed cost basis. So, India may not lose much if it shifts away from Russian oil because the savings right now are only $2 billion. But the UBS global energy team has also pointed out that the crude market is only partially pricing supply disruption due to tariff pressures on India. So, it could temporarily drive crude prices above $70 a barrel. But if there is sufficient surplus and OPEC spare capacity, it can definitely cap the upside in prices. There is now a pressure to finish trade deals quickly. Is there anything to be worried about in terms of these deals resulting in India giving up too much during negotiations or not extracting as favourable terms as it could have otherwise? To be fair, India was the first country to come to the table to negotiate with the US and we are still there right now. So, it seems that India is trying to prioritise national interest and it is not in any rush to finish a trade deal quickly. The hope is that we are able to find a balanced deal between India and the US which works to both the countries' benefit. RBI's Monetary Policy Committee stayed put on the repo rate, but you now expect an additional 25 bps rate cut in October given the uncertainty caused by the tariffs. How does one understand this additional easing given that the central bank's latest forecast puts headline retail inflation at 4.9 per cent in April-June 2026? Our inflation forecast for 2025-26 — even before the Reserve Bank of India lowered their estimate by 60 bps to 3.1 per cent — was tracking close to 3 per cent with more downside risk. This is supported by good agricultural output, favourable monsoon, and the lower global crude oil prices. The offloading of excess China capacity in India at cheaper prices could result in a disinflationary impulse. Overlaying this disinflationary impulse with RBI's neutral policy rate assumption of 1.4-1.9 per cent, we see space for the terminal repo rate to fall towards 5-5.25 per cent range. For now, we add one 25 bps rate cut in the October meeting to our baseline, with risk of another (rate cut) if growth surprises lower, driven by US trade tariffs and/or a step shift lower in global growth. Yes, the one-year forward inflation of 4.9 per cent looks very high because of the base effect. But I would expect the new CPI inflation series, which will likely be launched early next year, to streamline that one-year forward inflation forecast. At this point, we think the RBI has kept some ammunition in the form of monetary easing support in case growth risks are skewed towards the downside. The RBI has maintained its 2025-26 GDP growth forecast at 6.5 per cent despite the global uncertainty, although it did trim it back in April by 20 bps from 6.7 per cent. Is the RBI possibly underestimating the hit to growth — not just from the tariffs themselves but also the adverse impact on corporate sentiment from the uncertainty? I would give the RBI some benefit of doubt because the MPC meeting took place before the additional 25 per cent tariff was announced. If we only incorporate the 25 per cent tariff that was in place before the additional tariff got announced after the RBI policy, the downside risk to GDP growth in real terms for 2025-26 was only coming to around 10-15 bps, as per our estimates. You recently launched your rural and urban economic activity indicators, where you said household consumption recovery is expected to become broad-based over the next 2-3 quarters backed by RBI's rate cuts, softer inflation, good monsoon, and income tax relief, among other factors. Will this recovery sustain without an appreciable rise in actual income levels? The UBS India Composite Economic Indicator, our leading indicator with 15 high-frequency data points, suggests economic momentum softened in May. This is in line with our global growth nowcast which suggests that tariffs and global uncertainty dragged growth sharply in May after a resilient April, helped by US tariff front-loading including improved demand, production, and trade. Our activity indicators suggest rural activity improved, while urban activity remained subdued in the June quarter. We note that rural accounts for 46 per cent share of total consumption. Even as rural activity is gaining traction, we believe it is still too early to expect a broad-based recovery in household consumption as urban activity continues to soften. One of the factors supporting our view that household consumption could be the bright spot in 2025-26/2026-27 was urban demand will stabilise on monetary transmission, lower inflation, and policy stimulus from income tax relief and likely fuel price cuts. We were also expecting a pay boost under the pay commission. However, implementation of the Eighth Central Pay Commission seems likely to be delayed to early 2027. While consumption will be growth-supportive, we are not expecting a broad-based household consumption recovery anytime soon. Siddharth Upasani is a Deputy Associate Editor with The Indian Express. He reports primarily on data and the economy, looking for trends and changes in the former which paint a picture of the latter. Before The Indian Express, he worked at Moneycontrol and financial newswire Informist (previously called Cogencis). Outside of work, sports, fantasy football, and graphic novels keep him busy. ... Read More
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India.com
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RBI Deputy Governor Bats For Financial Literacy Alongside Banking Access
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