29 Sep 2021 Government borrowing
- The government will borrow Rs 5.03 lakh crore in the second half of the current fiscal to fund the revenue gap for reviving the pandemic-hit economy.
- During the first half, the government has raised Rs 7.02 lakh crore by issuing bonds.
Background:
- The government raises money from the market to fund its fiscal deficit through dated securities and treasury bills.
- The Budget has pegged fiscal deficit at 6.8 per cent for the current fiscal, down from 9.5 per cent of the GDP projected for FY21.
What is government borrowing?
- Borrowing is a loan taken by the government and falls under capital receipts in the Budget document.
- Usually, the Government borrows through the issue of government securities called G-secs and Treasury Bills.
- How does increased government borrowing affect government finances?
- Bulk of the government’s fiscal deficit comes from its interest obligation on past debt.
- If the government resorts to larger borrowings, more than what it has projected, then its interest costs also go up risking higher fiscal deficit. That hurts government’s finances.
- Larger borrowing programme means that the public debt will go up and especially at a time when the GDP growth is subdued, it will lead to a higher debt-to-GDP ratio.
What are Off-budget borrowings?
- Off-budget borrowings are loans that are taken not by the Centre directly, but by another public institution which borrows on the directions of the central government.
- Such borrowings are used to fulfil the government’s expenditure needs.
- But since the liability of the loan is not formally on the Centre, the loan is not included in the national fiscal deficit.
- This helps keep the country’s fiscal deficit within acceptable limits.
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