The move suggests that the government now has a comfortable cash balance that can be used to repay bond holders.
If everything goes as planned, the government would repurchase a series of sovereign bonds at least two months earlier than the scheduled maturity in January 2018.
The bonds, which offered 6.25 per cent, will be repurchased through reverse auction for an aggregate amount of Rs 10,000 crore, as per the Reserve Bank of India.
The proposed electronic auction will be conducted next Monday.
"The repurchase by the government of India will be undertaken to redeem prematurely the government stocks by utilising surplus cash balances. The above repurchase of the Government Stocks is purely ad hoc in nature."
The move, as per the dealers, implies that the government now has a comfortable cash balance that can be used to repay bond holders.
"The government may be cash surplus after tax collections," ET quoted Piyush Wadhwa, head of rates trading at IDFC Bank, as saying. "It is using the surplus to repay the liability early. This is a positive sign for the debt market as it shows fiscal prudence."