Context: The Finance Ministry said the government will borrow Rs 4.34 lakh crore in the second half of the current fiscal to meet its expenditure requirement amid COVID-19 crisis afflicting the country’s economy. 

More about news:

  • The government is sticking to Rs 12 lakh crore borrowing target for the current fiscal, 
  • In the first half ended September, the government has done borrowing of Rs 7.66 lakh crore and remaining Rs 4.34 lakh crore will be mobilised during the second half of the current fiscal.
  • The Central government had budgeted to borrow Rs 7.80 lakh crore in FY21 but was forced to raise it by as much as 54%, as the Covid-19 pandemic hit its revenue collections.
  • The April-August fiscal deficit has already touched 109% of the full-year target.

What is government borrowing?

  • Government borrows through issue of government securities called G-secs and Treasury Bills. 
  • Its numerical value is equal to the fiscal deficit.
  • 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.

Factors taken into account

  • Potential fiscal stimulus requirements 
  • lower-than-expected disinvestment revenues in the borrowing plan. 
  • A substantial shortfall in tax revenue. 

How borrowings will be done?

  • The government has already borrowed Rs 7.66 lakh crore from the market in H1, including Rs 68,000 crore through a green-shoe option.
  • The government will borrow in 16 tranches of Rs 27,000-28,000 crore each in H2. 
  • The average tenure of the bonds will remain unchanged at 14.78 years during the second half. 
  • It will borrow Rs 24,000 crore through securities having a tenure of two years bonds and Rs 96,000 crore will be borrowed through 10-year bonds.
  • The Ways and Means Advances (WMA) limit will also be trimmed to Rs 1.25 lakh crore in the second half of this fiscal.

Green shoe option

  • Under a green shoe option, the issuing company has the option to allocate additional equity shares up to a specified amount.
  • A Green Shoe option allows the underwriter of a public offer to sell additional shares to the public if the demand is high.
  • The greenshoe option allows the government to sell up to 20 bln rupees more than the notified amount for one or more of the papers offered at its auctions.
  • The greenshoe option was introduced in gilt auctions in October 2017 so that the Centre could tweak the composition of its bond sales depending on market response.

Ways and Means Advances (WMA)?

  • It is a facility for both the Centre and states to borrow from the RBI. 
  • These borrowings are meant purely to help them to tide over temporary mismatches in cash flows of their receipts and expenditures. 
  • Section 17(5) of the RBI Act, 1934 authorises the central bank to lend to the Centre and state governments subject to their being repayable “not later than three months from the date of the making of the advance”.
  • The interest rate on WMA is the RBI’s repo rate, which is basically the rate at which it lends short-term money to banks. 
  • The governments are, however, allowed to draw amounts in excess of their WMA limits. 
  • The interest on such overdraft is 2 percentage points above the repo rate, which now works out to 6.4%. 

Reasons behind sticking to the fiscal target

  • The revenue has improved after lockdown curbs were lifted.
  • Expenditure reprioritisation plan: The Centre has imposed 20-40% budgetary spending curbs on many departments which could generate a saving of about Rs 4 lakh crore.


  • Government borrowing plays an important role in government's finances to meet its spending requirements.
  • Controlling bond yields: It could prevent a jump in yield on benchmark 10-year G-secs, which has remained marginally higher than 6% for over a month now. 
  • Crowding out effect: This will enable state governments and private players to borrow more in the second half of this fiscal.

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. 
  • Larger borrowing programme means that the public debt will go up and especially at a time when the GDP growth is subdued, it will lead to a higher debt-to GDP-ratio.

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