Subnational Borrowings in India – Volatilities and Determinants of State Government Securities Spread

Suraj.S, Amit Pawar and Subrat Kumar Seet in this Mar-23 RBI Bulletin article analyse the volatilities and determinats of spread of State Givt securities:

The article outlines the impact of the pandemic and policy measures undertaken by the Reserve Bank on the primary and secondary markets for State Government Securities (SGS). It studies the linkages between G-Sec and SGS yields and factors driving the pricing of SGS in primary markets.


    • The Reserve Bank’s special Open Market Operations (OMO) in SGS during the pandemic was effective in stabilizing the yields.
    • Developments that have a bearing on the benchmark G-sec yield eventually weigh on SGS yields. Prevailing growth and liquidity conditions explain the variation in SGS spreads over G-sec across States.
    • Higher yield spreads with larger cash balances accompany significant negative carry costs, which is the interest rate differential between the high borrowing costs and low investment returns of States. It highlights the need for improved fiscal marksmanship in cash management by States.

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