Mumbai: Indian states and Union Territories are expected to borrow around Rs 5 lakh crore during the January–March quarter of the 2025–26 financial year, signalling one of the most substantial quarterly fundraising efforts by sub-national governments in recent history. This projected borrowing is set against a backdrop of rising state fiscal requirements and increased issuance of state development loans (SDLs), with the overall figure likely to mark a significant contribution to public sector debt supply in the final quarter of the current fiscal year.

According to a statement from the Reserve Bank of India, this anticipated Rs 5-lakh-crore borrowing would be the highest ever for any quarter, reflecting strong fiscal activity by state governments across the country. So far in FY26, states have already raised approximately Rs 7.13 trillion, and the addition of Q4 borrowings is expected to push annual sub-national debt issuance to record levels.

Market participants noted that heavy borrowing by states, alongside Central government debt issuance, could have implications for bond market yields and liquidity conditions. With demand for government securities remaining subdued among traditional buyers such as banks and pension funds, the surge in supply from state and central borrowings is likely to keep long-term yields elevated, influencing broader financing costs.

Market participants noted that heavy borrowing by states, alongside Central government debt issuance, could have implications for bond market yields and liquidity conditions. With demand for government securities remaining subdued among traditional buyers such as banks and pension funds, the surge in supply from state and central borrowings is likely to keep long-term yields elevated, influencing broader financing costs. State borrowings typically fund infrastructure development, operational expenditure and social welfare schemes, and remain a core component of public finances.