The Centre will cut its planned additional market borrowing to Rs 20,000 crore for the fiscal ending March 31 from Rs 50,000 crore earlier.
The reduced borrowing is expected to help contain fiscal deficit within the target in the wake of tax and non-tax revenue collection falling short of expectations.
"Upon a review of trends of revenue receipts and expenditure pattern, it has been assessed that additional borrowing of only Rs 20,000 crore of government securities would be adequate to meet the financing needs," the finance ministry said in a statement.
The immediate impact of the announcement was a sharp recovery in the rupee. It strengthened by 10 paise to 63.92 against the US dollar within minutes of the announcement.
On Monday, the rupee had lost 55 paise or nearly 1% - its biggest single-day crash in eight months - to end at a fresh two-week low of 64.04 against the US dollar, hit by the news of rising global crude prices and worsening trade deficit.
Tuesday's news also sent the benchmark 10-year bond yields down over 15 basis points.
The yields on bonds were rising ever since the government in December announced that tit will increase its market borrowing by Rs 50,000 crore this fiscal. That had also given a fear among investors of a potentially wider fiscal deficit risks.
The bond market was also battered by concerns about rising inflation and the speculation that the government would resort to populist measures to woo voters ahead of the 2019 Lok Sabha elections.
The finance ministry said that the Centre has not accepted borrowings of Rs 15,000 crore in the last three auctions.
Remaining Rs 15,000 crore would be reduced from the notified borrowing programme for the ensuing weeks.
However, there will be no change in net borrowings as envisaged in the Budget for 2017-18.
The government had budgeted a gross market borrowing of Rs 5.8 lakh crore and a net borrowing of Rs 4.23 lakh crore for the current fiscal.
Analysts, however, said that cutting back on the bond sales might still not be enough to bring fiscal deficit to under 3.5% of GDP for the current fiscal, as the government was additionally borrowing through Treasury bills.
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