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Last Updated : May 08, 2020 10:21 PM IST | Source: Moneycontrol.com

Government’s FY21 borrowing to jump by over 50% as COVID-19 upsets Budget plans

The above revision in borrowings has been necessitated on account of the COVID pandemic, according to a report by CNBC-TV18.



The government has raised the estimated gross market borrowing for FY 2020-21 to Rs 12 lakh crore from Rs 7.80 lakh crore as per Budget Estimates (BE) 2020-21.


The government said the revision in borrowings has been necessitated on account of the COVID pandemic. 



The gilt issuance calendar for the remainder of April-September has also been modified.


As per the revised calendar, the government will borrow Rs 6 lakh crore from the market via gilts through the remaining part of the first half of the year.


"There are clear signs of government finances being affected by the shutdown as revenue has ebbed and expenditure pressure will be there through the year even after the lockdown is withdrawn," CARE Rating said in a note.


It also noted that this also meant that currently, there is no intention of RBI lending directly to the government. Also, the surplus money going into reverse repo could not be diverted to GSecs which make a safe avenue for parking surplus funds.


So what is gross market borrowing?

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.

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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

First Published on May 8, 2020 06:00 pm
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