Union Budget 2025: What is govt borrowing and how does it impact the fiscal deficit?
Union Budget 2025 set to be presented in February, it’s a great time to dive into the concept of government borrowing and how it connects to the fiscal deficit.
What is government borrowing?
Government borrowing happens when the government takes loans, either from within the country or from abroad, to fund its expenses. This borrowing is typically done by issuing government securities (G-secs) and Treasury Bills. These borrowings are classified as capital receipts in the Budget.
In simpler terms, when tax and other revenues aren’t enough to cover all its spending, the government borrows money. The annual borrowing plan is revealed in the Union Budget, and it represents the total amount the central government needs to keep its public services and benefits running.
How does borrowing affect government finances?
A significant part of the fiscal deficit is due to the government’s interest payments on previous debts. If the government borrows more than planned, its interest obligations increase, leading to a higher fiscal deficit. This puts additional strain on the government’s finances, making it challenging to maintain budgetary goals.
What is the government’s borrowing schedule?
The government follows a structured borrowing calendar. It plans its borrowing in two parts annually. Smaller state governments, however, plan theirs quarterly.
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