The government has announced in the budget that a loan of about 12 lakh crore rupees will be taken in the financial year 2021-22. Due to the debt, the fiscal deficit will be a record 9.5 per cent in the current financial year and 6.8 per cent next year.
The condition of the country’s treasury has become miserable due to the Corona crisis, so the government has announced in the budget that a loan of about 12 lakh crore rupees will be taken in the financial year 2021-22. In the current year i.e. 2020-21, the government has had to take almost the same loan. Let us know how the government takes loans?
Due to debt, the fiscal deficit in the current financial year will be a record 9.5 percent and it will be 6.8 percent next year. By September 2020, India’s total public debt i.e. public debt reached Rs 1,07,04,293.66 crore (107.04 lakh crore). Which is about 68 percent of GDP.
Of this, internal debt was 97.46 lakh crore and external debt was 6.30 lakh crore. Not only this, according to a report of the Department of Economic Affairs, Ministry of Finance, the debt-GDP ratio has been between 67 and 68 percent in the last ten years. Public debt brings the total liability of the central and state governments, which is paid from the consolidated fund of the government.
Why does the government take loans
In fact, the government’s expenditure is always more than its income. According to the circumstances of every year, the government has to spend huge amount on welfare and development works like education, health and infrastructure. So the government has to borrow.
How to get loan
The government takes loans in two ways, internal or external. That is, the internal debt which is from within the country and the external debt which is taken from outside the country.
Internal loans are taken from banks, insurance companies, Reserve Bank, corporate companies, mutual funds etc. External or external debt is taken from friendly countries, institutions like IFM World Bank, NRI etc. The increase in foreign debt is not considered good because the government has to repay it in US dollars or other foreign currency.
According to the World Bank, if the external debt in a country exceeds 77 percent of its GDP, then that country may have to face a lot of trouble later. When this happens, the GDP of a country falls by 1.7 percent.
Talking about the country, the government usually takes loans through government securities (G-Secs). Whatever money comes through market stabilization bonds, treasury bills, special securities, gold bonds, small savings schemes, cash management bills, etc., is a debt to the government.
When someone invests in a G-Sec or government bond, he is giving a loan to the government in a way. The government returns this loan after a certain time and pays a fixed interest. The government often issues such G-Secs to build roads, schools etc.
G-Secs which have maturity period less than one year are called Treasury Bills. G-Secs for over a year are called government bonds. Apart from this, state governments can only issue bonds called State Development Loans (SDLs).
The government reveals the date of issuing such treasury bills or bonds long back. Banks, insurance companies, financial institutions, mutual funds, pension funds, etc. institutional investors usually invest in such government securities. In the year 2001, all investors were given the right to invest in it, but for ordinary investors only 5 percent share is given. That is, if a G-Sec is worth 100 crores, then only 5 crores will be taken from the general public.