Question

Disinvestment of government companies and borrowings from World bank comes under Which ricepts
of the government.​

Answer 1

Answer:

Government borrowing plays an important role in government's finances to meet its spending requirements. In the current fiscal, the government has decided to stay with the borrowing programme as announced in the Budget 2019. This has cheered the markets and kept yields in check. In the Budget speech, the finance minister also announced borrowing from overseas market but later on dropped the plan owing to currency risks.

Let's try to understand the term government borrowing and look into ways how the government meets its fiscal targets.

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What is government borrowing?

Government borrows through issue of government securities called G-secs and Treasury Bills. Borrowing is a loan taken by the government and falls under capital receipts in the Budget document. It is essentially the total amount of money that the central government borrows to fund its spending on public services and benefits. As the tax and non-tax revenue fall short in financing government's spending programme, the government announces an annual borrowing programme in the Budget.

Will the government maintain its budgeted borrowing levels?

The government's decision to stick to its borrowing programme has largely kept the bond yields in check. But the risk of raising finances at a time when the gross tax revenue collection is already under pressure could constrain spending which is key to economic revival. India's fiscal deficit rose to 114.8 per cent of the target in the first eight months of the fiscal year.

How does increased government borrowing affect govt finances?

Bulk of government's fiscal deficit comes from its interest obligation on past debt. If the government resorts to larger borrowings, more than what it has projected, then its interest costs also go up risking higher fiscal deficit. That hurts government's finances. Larger borrowing programme means that the public debt will go up and especially at a time when the GDP growth is subdues, it will lead to a higher debt-to-GDP ratio.

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