Bondage to yields.

"From 2026-27, the government will track its debt instead of fiscal deficit as its primary target." So the fiscal deficit has to be managed "in such a way that the ratio of central debt to gross domestic product  (GDP) declines to 50% (+ or -1%) by 31 March 2031." The G7 economies have a debt-to-GDP ratio of up to 124%, but they "generated tax revenues to the tune of 30-44% of GDP (except the US, with a tax-to-GDP ratio of 26%). "In contrast, India has a lower debt-to-GDP ratio, and most of its debt is domestic, but its tax revenues form merely 11% of GDP," wrote Deepa Vasudevan. "A fiscal deficit arises when a government's total expenditure surpasses its revenue, excluding its borrowed funds. The shortfall is typically managed by securing loans or issuing government bonds." Bajaj Finance. The government needs to pay interest on its bonds, and that brings us to yields. The government fixes a rate of interest on bonds depending on its duration to maturity which is its 'coupon rate'. However, "The market price of bonds may be above or below their face value as they trade in the secondary market," and the percentage of the coupon rate over its market price gives its yield. SBI Securities. Thus, bond prices are inversely related to yields. Markets take the 10-year bond yield as the benchmark. "The 10-year yield tells you what the bond market thinks about long-term interest rates, inflation expectations, and the direction of monetary policy." "For economists, lenders and fund managers alike, the 10-year bond is the benchmark." Jiraaf. "Since June, its yield has stubbornly stayed in a 6.40-6.60% range," wrote Madan Sabnavis. This is despite a 25-basis points (bps) cut in interest rates to 5.25% by the Reserve Bank of India (RBI) in December, for a total of 125 bps cut in 2025. NDTV. The higher the yield the more interest the government has to pay on its borrowings, so it tries its best to drive yield down to as low as possible. The Statutory Liquidity Ratio or "SLR obliges banks to hold a prescribed ratio (currently 18%) of their assets in the form of gold or government bonds, effectively the latter." "For decades, SLR has forced banks to become financiers of government debt," wrote Swaminathan Aiyar. Demand generated by banks helps to increase prices of G-secs and drive yield down. "Indian government bonds slipped in early deals yesterday," as "The benchmark 10-year yield was at 6.6692% at 10.30 am." ET. It closed at 6.678%. investing.com. JP Morgan Chase & Co is to reduce the weightage of India's bonds in its GBI-EM Global Diversified Index from 10% to 9% gradually. TOI. Also, early this week, Bloomberg Index Services deferred their decision to include Indian government bonds into its flagship Global Aggregate Index which "was expected to attract $20-25 billion into government debt. Instead, Bloomberg said it would continue reviewing Indian bonds and provide its next update by mid-2026." Mint. The government has raised the threshold for individual income tax and reduced rates in the goods and services tax (GST) (clear tax.in). At the same time its list of subsidies is almost endless. dge.gov.in. It cannot cut any for fear of losing elections. Revenues down, expenses up, high interest payments. Could the ratings be in danger? What a mess!