In an ideal world, governments would love to make more money than they're spending, and that would be that. But in reality, many governments end up spending a fair bit more than they earn — so what do they do then? That's where gross market borrowing comes in.
When the government runs a fiscal deficit — when its total expenditure is higher than its total revenue — it borrows money to meet the difference. Governments typically raise funds from the market to fund their fiscal deficit through dated securities and treasury bills. The RBI conducts the sale and purchase of these government securities.
While net borrowing is the amount borrowed during the fiscal year, gross borrowing includes net borrowing for the year and the repayment of past loans.
The gross borrowing estimate for FY20 at Rs 7.1 lakh crore is 24 percent higher than Rs 5.71 lakh crore for FY19. During a press briefing in March, economic affairs secretary SC Garg said the gross borrowing is higher because of the repayment programme.
But can the government continue borrowing heavily to meet its deficit? The answer is no. Higher government borrowing tends to push up interest rates. The logic is that if the government borrows more, it will have to compete for funds from the private sector, which would mean it will end up paying higher interest rates.