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GDP SHRINKING, GOVT. MAY BORROW MORE

Focus: GS-III Indian Economy

Why in news?

Crisil Research said India’s Gross Domestic Product (GDP) would shrink 9% in FY21, wider than its May 2020 estimate of a 5% contraction.

Revenue shortfalls in India, the major economy hardest hit by the COVID-19 pandemic, are likely to force the Centre to borrow more, but it will only consider monetising its deficit as a last resort.

Details

  • This rate of fall has not been seen since the 1950s.
  • If the pandemic were to peak out in September-October, GDP growth could move into mildly positive territory towards the end of the current FY.
  • Borrowing plans for the second half of the financial year, will be reviewed by government and Reserve Bank of India (RBI) officials.
  • RBI could ease liquidity through open market operations to keep yields in check while helping the government to raise borrowing, already targeted at a record ₹12 lakh crore.
  • RBI has pumped in over ₹11 lakh crore of liquidity into the market, helping to keep 10-year bond yields below 6% even as the government decided to borrow 70% more than last year as a result of the pandemic.

-Source: The Hindu

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September 2022
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