Government To Borrow ₹12-Lakh Crore In FY21 – Free PDF Download

WHAT IS FISCAL DEFICIT?

• The difference between total revenue and total expenditure of the government is  called as fiscal deficit.

WHAT DO YOU MEAN BY FISCAL DEFICIT AT 5% OF GDP?

• If the gap between the Centre’s expenditure and total income is Rs 5 lakh crore.
• And the country’s GDP is Rs 100 lakh crore,
• The fiscal deficit is 5% of the GDP.

HOW IS FISCAL DEFICIT MET?

• The government meets fiscal deficit by borrowing money.
• Thus, Total borrowing = Fiscal deficit in that year

• In a circular issued on Friday, the government said that the gross borrowing target for the year has been raised to Rs 12  lakh crore from the budgeted Rs 7.8 lakh crore.
• The increase in borrowings has been done in consultation with the Reserve Bank of India and has been necessitated on  account of the Covid-19 pandemic, the government said.

• It did not provide any further details on the financing of the deficit
• Or whether the RBI will step in to buy government securities directly or indirectly.
• In the first half of the fiscal year, the government will borrow Rs 6 lakh crore from the markets.

WHY THIS STEP?

• The government has estimated Rs 24.23 lakh crore tax collection for the year,
• But two months of lockdown puts a total of Rs 4 lakh crore under pressure.
• Unlikely that the government may achieve the disinvestment target of Rs 2.1 lakh crore.

IMPACT ON INFLATION?

• It is unlikely that inflation will go up in short term, since there is hardly any demand in the economy.

IMPACT ON BOND YIELDS?

• When there is more supply of government papers in the market, yields are likely to jump.

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