Government borrowing and spending commitments

The government is planning to borrow ₹4.88 lakh crore in the first half (H1) of the fiscal year (FY20–21) out of the total ₹7.8 lakh crore annual gross borrowing plan. The government is planning to borrow nearly 63% of its total borrowing plan in the first six months (April-September) of the fiscal itself.

Why the need to borrow?

The government spending/expenditure is generally more than the income it receives mainly from taxes. The tax revenue collections have been sluggish during the recent fiscal with fiscal deficit widening beyond estimates. At the end of February, India’s fiscal deficit touched 135.2% of the budget estimate for fiscal 2019–20.

The spending commitments like reforms, stimulus packages, relief measures during the times of crisis (the current pandemic for example) or slowdown put more pressure on government spending to rise.

Borrowing sources & national debt

Treasury bills, bonds, market borrowing, external, financial institutions or organizations, government securities are some of the sources the government borrows money from. India is said to pay a higher proportion of interest payments for its debt obligations and repayments.

India’s external debt at the end of June 2019 stood at $557 billion, up to $14.1 billion over its level at end-March 2019, as per RBI data. India’s *debt-to-GDP ratio was believed to be nearly 69% for fiscal 2019–20.

*Debt-to-GDP ratio is the ratio comparing government debt and its gross domestic product (GDP). The ratio indicates a particular country’s ability to pay back its debts.

Adding to the current borrowing plan, the government announced that it will stick to its gross market borrowing target for 2020–21 as of now despite the challenging market environment. It also announced the weekly borrowing of around ₹19,000 crore to ₹21,000 crore by issuing bonds throughout the first six months of the fiscal period.

Head to moneyguru’s Insight section to stay updated on all major financial news updates of the day