Budget 2022 | From whom does the government borrow?

As the country readies itself for Budget 2022, here’s looking at the places whom the government borrows from to meet its demands

As the Modi government gears up to table its second pandemic Budget on February 1, all eyes will be set on Finance Minister Nirmala Sitharaman and what her ministry has in store to aid in the recovery of the Covid-battered economy.

Reading the Budget fine-print and breaking it down can come with the understanding of some important terms and concepts that find their place in the document. One of the important things to know is government borrowings in the Budget.

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What is government borrowing?

The government borrows through the issue of government securities called G-secs and Treasury Bills. It is a loan taken by the government that falls under capital receipts in the Budget document. Whenever the tax and non-tax revenue falls short to finance the government's spending, the government announces an annual borrowing programme in the Budget every year.

Where does the govt borrow from?

It borrows from the market, small savings funds, state provident funds, external assistance and short-term borrowings. Market borrowing, however, is the major source to finance the fiscal deficit.

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Does borrowing have an adverse impact on the economy?

Yes. It has two kinds of impact. One, if the govt borrows more from the market, it implies that it has left very little space for the private sector and corporates to access the market.

Secondly, large govt borrowing shoots up the interest rates for all other borrowers in the market, in turn, it increases the debt repayment burden of the government and also pushes up the rate of investment in the economy which in turn leads to slowing economic growth.

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