9. Debt Management Strategy: Government\'s ₹75,505 Crore G-Sec Switch Auction

The Government of India, in coordination with the Reserve Bank of India (RBI), executed a significant \'switch auction\' involving the buyback of short-term maturing securities worth ₹75,504.43 crore. By replacing nearterm liabilities with long-term debt maturing in 2040, the Centre aims to smoothen its redemption profile and reduce the immediate pressure on the exchequer. Key Highlights of the Switch Operation • Maturity Extension: The primary objective was to replace securities maturing in FY2026 and FY2027 with long-term bonds maturing in 2040, effectively pushing back the repayment obligation by 14 years. • Volume of Transaction: The Centre repurchased G-Secs worth ₹75,504.43 crore while issuing fresh bonds worth ₹69,436.15 crore, resulting in a net reduction of the immediate debt stock. • Specific Securities Involved: The buyback targeted high-interest vintage bonds, including the 8.33% GS 2026 and 8.15% GS 2026, which represented significant upcoming redemption pressures. • Fiscal Prudence: This move is a proactive debt management tool used to prevent a \'redemption bunching\' scenario, where too many bonds mature simultaneously, potentially straining government liquidity. • Interest Rate Dynamics: By issuing 8.30% GS 2040 bonds in exchange for older high-coupon rates, the government stabilizes its long-term borrowing cost in a fluctuating interest rate environment. • Market Liquidity: Such operations help in managing systemic liquidity and provide the market with longer-duration papers, which are often in high demand by insurance companies and pension funds. Constitutional & Legal Provisions • Article 292: Grants the Executive power of the Union to borrow upon the security of the Consolidated Fund of India within limits fixed by Parliament. • Article 266(1): All borrowings by the Government of India form part of the Consolidated Fund of India, from which redemptions are eventually made. • FRBM Act, 2003: The Fiscal Responsibility and Budget Management Act mandates the government to ensure longterm macro-economic stability and sustainable debt levels. • RBI Act, 1934: Under Section 20 and 21, the RBI acts as the \'Investment Banker\' and \'Debt Manager\' to the Central Government, conducting auctions and managing the public debt office. Definitions of Key Terms • G-Sec (Government Security): A tradeable instrument issued by the Central or State Governments acknowledging the government’s debt obligation. They are considered \'Gilt-edged\' (risk-free). • Switch Auction: A liability management exercise where the government buys back short-term securities from investors (or the RBI) and issues long-term securities of equal or similar value in exchange. • Redemption Bunching: A situation where a large volume of debt matures within a short window, potentially causing a cash flow crisis for the borrower (the State).• Coupon Rate: The fixed annual interest rate paid by the bond issuer to the bondholder until the security matures. Conclusion The ₹75,505 crore switch operation is a strategic move to insulate the 2026-27 fiscal years from heavy repayment burdens. By utilizing the RBI\'s window for this auction, the Centre has demonstrated active \'Active Liability Management,\' ensuring that the fiscal deficit remains manageable and the domestic bond market remains stable without sudden spikes in yields due to massive upcoming redemptions. UPSC Relevance • Prelims: Understanding G-Secs, the role of RBI as debt manager, and the mechanics of \'Switch Auctions\' or \'Buybacks.\' • Mains (GS Paper III): Indian Economy and issues relating to planning, mobilization of resources, and fiscal policy. The significance of debt-to-GDP ratio and the importance of smoothening the debt maturity profile for sustainable growth.