20 lakh crore relief package announcement, where will the money come from ...?

New delhi date. 13 May 2020, Wednesday

Prime Minister Narendra Modi has announced a special economic package to revive the country's economy, which has been weakened by the Corona virus. Addressing the people of the country, the Prime Minister said that the package would be around Rs 20 lakh crore, taking into account the current decision of the government and the announcements of the Reserve Bank.

It is about 10 per cent of the country's gross domestic product (GDP). Finance Minister Nirmala Sitharaman will elaborate on the package but the government has a question as to where the money for the economic package will come from.

The government is borrowing

In fact, the government has raised its borrowing target from the market to Rs 12 lakh crore for the current financial year. Importantly, the target was set at Rs 7.8 lakh crore in the general budget.

This means that the government will borrow an additional Rs 4.2 lakh crore this year. Just a few days ago, the government said that it was necessary to increase the target for loans due to the Koro crisis. Rs 6 lakh crore will be raised through market gilt (bonds) in the first six months. This money will be used to save the economy from the Corona.

What will be the effect?

Earlier, Japanese brokerage firm Nomura said the government was borrowing Rs 12 lakh crore from the market. That could lead to a fiscal deficit of 5.5 to 6 per cent, compared to the government's estimate of 3.5 per cent this year.

It is a big challenge for the government to make up for this financial loss. However, many efforts are also being made for it. Raising taxes on petrol and diesel will bring in Rs 1.4 lakh crore to the exchequer. Currently, crude oil prices are witnessing a historic decline, making it easier for the government to impose taxes. This will not give any relief to the general public on petrol-diesel and will not make any significant difference in prices.

The Reserve Bank of India will also help

The Reserve Bank of India will also help the government during the Koro crisis. According to a report, the central government is preparing to seek Rs 45,000 crore from the Reserve Bank. The Reserve Bank largely makes a profit by trading currency and government bonds. A portion of these earnings is kept by the RBI as its operating and emergency fund. The remaining amount is then paid to the government as dividend.