Introduction

The Government Securities Acquisition Programme (G-SAP) was introduced by the Reserve Bank of India (RBI) as a structured mechanism to manage liquidity and stabilize bond yields in the Indian financial market. Launched in April 2021, G-SAP was designed to support the government borrowing program by purchasing government securities (G-Secs) in a non-disruptive and transparent manner.

With the COVID-19 pandemic affecting economic stability, the RBI used G-SAP to ensure that the government’s borrowing cost remained manageable, while also maintaining liquidity in the financial system. This program provided certainty to bond markets, reducing volatility and helping investors, especially banks and financial institutions, plan their portfolios effectively.

This article explains the meaning, objectives, features, impact, and future of G-SAP in the Indian economy.

What Is the Government Securities Acquisition Programme (G-SAP)?

• The Government Securities Acquisition Programme (G-SAP) is an open market operation (OMO)-based bond-buying program under which the RBI commits to purchasing a fixed quantum of government securities (G-Secs) in the secondary market.
• Unlike regular OMO operations, where the RBI conducts bond purchases as needed, G-SAP provides a structured, pre-announced schedule for government bond acquisitions, ensuring transparency and predictability for market participants.

Example: Under G-SAP 1.0, the RBI committed to purchasing ₹1 lakh crore worth of government securities in Q1 of FY 2021-22 to stabilize long-term bond yields.

Key Features of G-SAP

• Planned and Transparent: RBI announces bond purchases in advance.
• Market Stability: Reduces fluctuations in government bond yields.
• Liquidity Support: Ensures smooth liquidity flow in the banking system.
• Non-Disruptive Execution: Prevents sharp fluctuations in the G-Sec market.
• Supports Government Borrowing: Helps manage cost-effective borrowing for the government.

Objectives of G-SAP

1. To Stabilize Bond Yields & Interest Rates

• Reduces excessive fluctuations in G-Sec yields due to market uncertainty.
• Prevents bond yields from rising too high, keeping borrowing costs in check.

2. To Ensure Sufficient Liquidity in the Financial System

• RBI purchases G-Secs from banks and institutions, increasing liquidity in the economy.
• This liquidity enables credit growth and economic revival.

3. To Support Government Borrowing Programs

• The Indian government borrows large amounts through bond issuances.
• G-SAP helps absorb excess supply, preventing spikes in bond yields.

4. To Reduce Market Volatility

• By committing to bond purchases, RBI reduces uncertainty and speculation in the bond market.
• Provides stability to institutional investors, banks, and foreign investors.

How Does G-SAP Work?

• Step 1: Announcement of G-SAP Operations

RBI announces a pre-fixed amount of government securities it will buy during a quarter.

This provides transparency and predictability to bond markets.

• Step 2: RBI Purchases Government Securities from the Market

The RBI buys government bonds from banks, mutual funds, and financial institutions.

Purchases are made through secondary market transactions.

• Step 3: Impact on Bond Yields & Liquidity

As RBI buys bonds, demand increases, preventing bond yields from rising sharply.

Fresh liquidity enters the banking system, supporting lending and economic activity.

• Step 4: Market Stability & Economic Growth

Predictable bond purchases reduce uncertainty for investors.

Helps maintain stable borrowing costs for businesses and the government.

Example:

If the 10-year government bond yield starts rising beyond 7%, RBI can use G-SAP to buy bonds and push yields down, ensuring lower borrowing costs for the government.

G-SAP 1.0 & G-SAP 2.0: Implementation in India

G-SAP 1.0 (April – June 2021)

• RBI committed to purchasing ₹1 lakh crore worth of government securities.
• Aim: Manage long-term bond yields & support economic recovery post COVID-19.
• Helped in controlling rising yields and ensuring smooth liquidity.

G-SAP 2.0 (July – September 2021)

• RBI announced an additional ₹1.2 lakh crore bond purchases in Q2.
• Enhanced investor confidence and helped manage inflation concerns.
• Played a key role in stabilizing India’s bond market.

Impact of G-SAP on the Indian Economy

1. Lower Borrowing Costs for the Government

• By purchasing G-Secs, RBI helps reduce bond yields, ensuring that the government borrows at lower interest rates.

2. Improved Liquidity for Banks & Institutions

• Banks can sell their government bond holdings to RBI, receiving fresh liquidity for lending to businesses & consumers.

3. Stronger Market Confidence & Stability

• Investors have more clarity and confidence in RBI’s actions.
• Lower volatility in bond markets and interest rates.

4. Impact on Inflation & Economic Growth

• If too much liquidity is injected, inflation may rise.
• G-SAP supports economic growth, but RBI must balance liquidity to avoid inflation risks.

Challenges & Risks of G-SAP

1. Risk of Inflationary Pressure

• Injecting excess liquidity can increase inflation if not managed carefully.
• High inflation can lead to higher interest rates, reducing economic growth.

2. Excess Dependence on RBI for Bond Support

• If RBI keeps buying bonds, the government may delay fiscal reforms.
• Over-reliance on RBI can distort market efficiency.

3. Impact on Foreign Investment

• If bond yields remain artificially low, foreign investors may withdraw capital seeking higher returns elsewhere.

4. Managing Exit Strategy

• RBI must strategically phase out G-SAP to avoid market shocks when it stops buying bonds.

Future of G-SAP in India

The success of G-SAP in stabilizing bond markets has raised discussions about whether RBI should continue such structured bond-buying programs in the future.

• If bond yields rise sharply, RBI may reactivate G-SAP to control volatility.
• Future G-SAP versions could include corporate bonds to support corporate debt markets.
• RBI must balance liquidity injections carefully to avoid long-term inflation risks.

With India’s economy recovering post-COVID, the RBI’s monetary policy decisions will determine whether structured bond purchases like G-SAP will be required again in the future.

Conclusion

The Government Securities Acquisition Programme (G-SAP) was a crucial initiative by the RBI to stabilize bond yields, ensure liquidity, and support government borrowing during economic uncertainty. By committing to structured bond purchases, the RBI reduced market volatility, helped banks manage liquidity, and ensured smooth government borrowing at lower costs.

While G-SAP successfully boosted market confidence and reduced bond yield fluctuations, its long-term impact depends on how RBI manages liquidity and inflation risks. Future versions of G-SAP may be introduced depending on market conditions, economic stability, and inflation trends.

For investors, tracking RBI’s bond-buying programs like G-SAP can provide key insights into interest rate trends, liquidity conditions, and market stability in India.