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Last Updated : Jan 26, 2019 09:33 AM IST | Source: Moneycontrol.com

Explained | What happens when govt fall short of funds?

Watch the video to know how the government raises money if it falls short of funds and more.

Moneycontrol News @moneycontrolcom

Government expenses, like households, often fall short of income. So how does the government raise money if it falls short of funds? One way it raises loans is from the market by bonds. The RBI auctions these bonds on the government's behalf. Financial institutions and banks mostly buy these bonds.

Another way to raise cash flow is through Treasury Bills. For temporary cash flow, the government also issues short-term treasury bills or bonds. These bonds have a maturity of 364 days, 182 days or 91 days. Small savings are another source of bridging the deficit. The government also borrows money from individuals through saving schemes. Post office savings, national savings certificates, public provident funds, are some schemes that the government borrows from. These are pooled under the National Small Savings Fund (NSSF).

So all this brings us to the government's fiscal deficit.The fiscal deficit is a measure of the government's annual borrowing. The government had set a fiscal deficit target of 3.5 percent of GDP for 2017-18 and 3.3 percent for 2018-19.

Watch the video by Sakshi Batra, for more insights on Budget 2019.
First Published on Jan 26, 2019 09:13 am
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