Karandikars & Associates

Market Borrowings of Central and State Governments

In India, both the Central Government and State Governments raise funds through fixed income securities or bonds. The Central Government can raise two kinds of bonds, short-term (also known as Treasury Bills (T-Bills), with maturities less than one year) and long-term duration (also called Government Securities (G-Secs), with maturities above one year). State Governments, on the other hand, only raise what are known as the State Development Loans (SDLs) (recently renamed as SGS, or State Government Securities)

The Reserve Bank of India (RBI) manages the borrowing programs for both the Central and State governments in India

Gross market borrowing represents the total amount of funds the government raises from the market during a specific financial year, irrespective of existing debt obligations. It is the aggregate value of all new government securities (G-Secs, treasury bills for the Centre, State Development Loans or SDLs for states) issued to the market over the fiscal year
The funds raised cover both the government's actual financial deficit for the current year and the capital required to repay or redeem older, maturing debt obligations from past years

Net market borrowing represents the actual, additional amount of funds that the government borrows from the market after accounting for the repayment of past loans. It is calculated by subtracting the total value of old debt redeemed (repaid) during the year from the gross market borrowing for the same period. This is the figure that directly corresponds to the government's fiscal deficit for the year. It indicates the net injection of funds available to the government for financing its excess of expenditure over non-debt receipts, which can be allocated to various revenue or capital expenditures.

This distinction between gross and net borrowing is vital as it allows for a clear differentiation between the refinancing of old debt (which doesn't add to the total debt burden) and the creation of new debt to fund current year operations, providing transparency in fiscal management

Table below captures trend in Market Borrowings of the Central and State Governments, Gross and Net

For the year 2024-25, Gross borrowings were: Centre Rs 17,60,086.6 cr (Rs 17.6 lakh cr) and States 10,73,310.2 cr (Rs 10.73 lakh cr) for a total gross borrowings of Rs 28,33,396.8 cr (Rs 28.33 lakh cr))

During the same year, Net borrowings were: Centre Rs 9,41,177.3 cr (Rs 9.41 lakh cr) and States Rs 7,53,345.2 cr (Rs 7.53 lakh crore) for a total net borrowings of Rs 16,94,522.5 cr (Rs 16.94 lakh cr)

Over the years, States’ debt burdens have risen sharply in India

As an example, if we scroll down the above Table, for the year 2000-01, the Gross and Net borrowings were:
Gross: Centre Rs 115,183 cr / State Rs 13,300 cr , or share of State at 10.4%
Net: Centre Rs 73,787 cr / State 12,880 cr, or share of State at 14.9%

Against this, for 2024-25, Share of States in Gross Borrowings works out to 37.9%, while in Net Borrowings it works out to 44.5%