Indian Government to Borrow Rs. 12 Lakh Crore to Aid Economy

The Coronavirus pandemic has taken a big toll on the global Economy including India. The government of India revised its 2020-2021 borrowing programme on 9th April 2020. It has increased the borrowing amount by 53.58%. That means it will now borrow Rs. 12 lakh crore from the initial decision of Rs. 7.8 lakh crore.

The Reserve Bank of India (RBI) mentioned on its website that the government has decided to take this decision on the account of the ongoing global pandemic.

Why does the Government Need Extra Money?

1. Coronavirus Outbreak

The government is need of the money because of the Coronavirus outbreak that has brought in some unprecedented economic situation. The global situation has led to a lockdown that has caused an increase in spending.

2. Stall of Disinvestment

There has been a national stall in disinvestment, which has led to poor flow of money. The extra loan can help overcome this problem.

3. Tax revenues facing pressure

Due to the economic Recession and various economic reforms undertaken by the government over the past two months, the tax revenue in the country is facing enormous pressure. The extra loan can help in tackling this problem.

About Government Borrowing

According to a recent report, the government will be borrowing Rs. 6 trillion between May 11, 2020, to September 30, 2020. Initially, the government’s plan was to borrow Rs. 4.88 trillion in the first half i.e. between April and September. The government has already borrowed Rs. 98,000 crores from the markets.

With the current plan, the government could borrow an average of Rs. 30,000 crore per week against the Rs. 19,000-21,000 crore weekly borrowing planned initially.

This means that Rs. 5 lakh crore will be borrowed in the second half against Rs. 2.92 lakhs crore estimated based on the latest programme.

What will be the Effect of Government Borrowing?

1. Improved market interest rates

Experts in the matter believe that this move will benefit the Market interest rates that faced a fall due to the novel pandemic. It will lead to higher borrowings. Crowd borrowings by corporates and state governments can prove beneficial for the dipping economy.

2. The government can continue spending to aid the situation

With the extra money, the government will face less pressure to cut down on funding aid amid the pandemic. It can continue funding state governments and other activities to help the economy deal with the situation.

3. Surplus money for reverse repo

The extra money could mean that the reverse repo rates could be diverted into government securities. This will mark as a safe place for parking surplus funds.

4. Possibility of Stimulus amount

The increasing of borrowing from 3.5% to 6% can lead to an increase in the size of the stimulus the government wants to provide.

Conclusion

The ongoing situation is definitely a test for the world because it has never occurred before. However, the world economies including India are fighting their best to be able to keep up their economies from facing a dire situation. The extra loan amount can really help India in this time of need.