The Indian government has been working to reduce its fiscal deficit in recent years. One strategy employed is strategic borrowing, where the government borrows at lower interest rates to repay high-interest debt. For instance, in 2022, the government borrowed ₹1.2 trillion at an average interest rate of 6.5%. This approach has helped decrease the fiscal deficit from 4.6% in 2020 to 4.1% in 2022.
However, experts warn that excessive borrowing can lead to increased debt, which may negatively impact the economy in the long run. As such, the government must strike a balance between borrowing and fiscal discipline. With the current fiscal deficit target set at 4.0% for 2023, the government faces a challenging task in achieving this goal while maintaining economic growth.
The success of this strategy will depend on the government’s ability to manage its debt effectively and make prudent financial decisions.