The excess of expenditures over revenues is called fiscal deficit. The government finances the fiscal deficit by borrowing directly from the people of India (small savings), financial markets (primarily banks and insurance institutions), and the rest of the world (multilateral loans, foreign portfolio investors). The government’s fiscal deficits and borrowings have tremendous implications for people’s savings and private investments in the economy.
The largest part of the government borrowings come from the people of India directly and indirectly (intermediated by banks and financial institutions). But the government’s fiscal deficits have expanded way beyond the people’s net financial savings.
In 2023-24, the Central government’s fiscal deficit/net borrowings alone (there are additional borrowings by states) were over 100 percent of their net financial savings. As competition of people’s savings increase between the government and the private sector, interest rates rise in the economy.
This has an adverse impact on the government’s budget. It also ends up paying larger and larger interest payments.