The Modi government is set to borrow ₹8 lakh crore within the next six months. The Finance Ministry has announced that this borrowing will be carried out by issuing government bonds with maturities ranging from 3 to 50 years. But why does the government need such a large loan? And how does it impact the economy? Let’s break it down.
Government’s Borrowing Plan
Key Borrowing Details:
Total borrowing: ₹8 lakh crore
Timeframe: April 1 to September 30, 2025
Instruments used: Government bonds and Treasury bills
Maturities: Ranging from 3 to 50 years
Green bonds issuance: ₹10,000 crore
Weekly Treasury bill issuance: ₹19,000 crore
Around 26% of this borrowing (₹2 lakh crore) will be raised through 10-year government bonds.
Why Does the Government Borrow Money?
Just like households plan their budgets, the government also manages its finances. However, the government’s expenditures often exceed its revenues. Key reasons for borrowing include:
Paying government salaries and pensions
Funding infrastructure projects
Running welfare schemes
Budget Estimates for 2025-26
Total government expenditure: ₹50.65 lakh crore
Revenue from taxes and other sources: ₹34.96 lakh crore
Projected borrowing for FY 2025-26: ₹14.82 lakh crore
So far, the government is borrowing ₹8 lakh crore, which is around 54% of the annual borrowing target.
Understanding Fiscal Deficit
The difference between government income and expenditure is known as the fiscal deficit. For 2025-26, the estimated fiscal deficit is 4.4% of GDP, translating to about ₹15.68 lakh crore. The government primarily borrows money to bridge this gap.
Is Government Borrowing a Concern?
India’s debt-to-GDP ratio remains under control when compared to global economies and therefore there is no need for financial concern.
India’s total debt-to-GDP ratio: 83%
India’s central government debt-to-GDP ratio: 57-58%
U.S. debt-to-GDP ratio: 130%
Since India’s debt levels are relatively lower, borrowing does not indicate financial distress.
How is Government Borrowing Regulated?
The Fiscal Responsibility and Budget Management (FRBM) Act of 2003 sets rules for government borrowing. According to the act:
The government can borrow up to 3% of GDP per year.
The total public debt should not exceed 60% of GDP.
India’s current central government debt-to-GDP ratio of 57-58% is within this limit.
Understanding Government Bonds and Other Financial Instruments
What are Government Bonds?
Government bonds (also known as Government Securities or G-Secs) are financial instruments used by the government to raise money. These bonds have different maturities, ranging from short-term (3 years) to long-term (50 years). Investors receive interest payments at regular intervals and get back the principal amount at maturity.
Difference Between Government Bonds and Corporate Bonds
Just like the government, private companies also raise money through corporate bonds. However, government bonds are considered a safer investment since they are backed by the government’s guarantee.
Green Bonds: Raising Money for Clean Energy
The government has announced the issuance of green bonds worth ₹10,000 crore. These bonds are used to finance eco-friendly projects such as:
Solar energy
Wind energy
Hydropower projects
Green bonds are part of India’s commitment to the Paris Agreement, which aims to combat climate change by reducing global warming.
Treasury Bills (T-Bills): Short-Term Borrowing
Treasury bills are used to raise funds for the short term. They are sold at a discount, and investors earn returns when they receive the full face value upon maturity.
Final Thoughts
The government’s decision to borrow ₹8 lakh crore in six months is a planned move to fund developmental projects and cover fiscal deficits. While borrowing is essential for economic growth, it remains within a controlled limit under fiscal regulations. Moreover, initiatives like green bonds show the government’s focus on sustainable development.
As India continues its economic expansion, such financial strategies play a crucial role in shaping the country’s fiscal future.
