The government borrows money from the market to meet any shortfall in funds to meet its expenditure when it is unable to cover it with income earned through tax, non-tax revenue.
The borrowing is done through the issue of dated securities and treasury bills, the purchase and sale of which is conducted by the Reserve Bank of India.
The money that government borrows during a particular fiscal year is called the net borrowing, while gross borrowing includes net borrowing for the year and the repayment of past loans.
So why is the borrowings number important? This is because when the expenditure is higher than the income, the difference, referred to as the fiscal deficit, widens.
Just like for an individual, borrowing heavily to fund expenses is not an ideal thing to do. For the economy, it affects the credit-worthiness and in turn, hampers the ability to attract investments. Higher government borrowing is also believed to push up interest rates as it could crowd out private sector. However, increased borrowings can also help in economic expansion as government spending triggers