Who funds the government's deficit?

Step 1 of 7Saving and dissaving

Start with the government's day-to-day account: what it earns from taxes and other current income, against what it spends on salaries, pensions, interest, subsidies and transfers. What is left is its gross saving.

In 2023-24 the Centre's gross saving was −₹4.27 lakh crore Set by balancing. It is negative: the Centre dissaved, spending more on current items than its current income. Part of the reason is that the Centre passes a large share of its taxes to the States, which counts as its current spending. The States together saved ₹1.09 lakh crore Set by balancing.

For general government as a whole (the Centre and the States together) gross saving was −₹3.18 lakh crore Official total · split set by balancing, or −1.1% of GDP Official total · split set by balancing. That total is published; how it divides between the Centre and the States is estimated from their budget accounts and was then adjusted when the accounts were balanced.

Step 2 of 7Investment

Governments also invest: roads, buildings, defence equipment and computer systems. The Centre's investment (fixed capital formation and changes in stocks) was ₹5.41 lakh crore Set by balancing and the States' ₹6.87 lakh crore Set by balancing.

The Railways and the Posts are not in these figures. The national accounts treat them as public enterprises, so their investment is counted with that of public sector companies, and the money the Centre puts into them appears in the next steps as a financial asset, not as government investment. That is one reason these figures are smaller than the capital expenditure in the Budget.

They also give capital transfers, money that others use to build assets. The Centre's include its grants to the States for creating capital assets: ₹1.80 lakh crore Set by balancing in all. The States paid ₹1.61 lakh crore Set by balancing.

Step 3 of 7The gap: net borrowing

Put the two steps together. When saving, plus capital transfers received, falls short of investment plus capital transfers paid, the gap has to be borrowed. In the national accounts this gap is called net borrowing. A government with money to spare would show the opposite, net lending. In 2023-24 both the Centre and the States were net borrowers:

Net borrowing by the Centre came to 3.9% of GDP Set by balancing, by the States 2.0% of GDP Set by balancing, and by general government 6.0% of GDP Set by balancing.

This is not the Budget's fiscal deficit. The fiscal deficit counts loans that a government gives, and shares it buys, as spending; here they are financial assets, the next step. The Budget also counts mostly in cash, while the national accounts follow their own rules on timing and on what belongs to government. So the two numbers differ, and both are correct for what they measure.

The accounts check this gap from the other side, too: it must equal the debts the government took on minus the financial assets it acquired. Here the two sides agree.

Step 4 of 7How the gap was financed

How was the gap financed? These are the debts each government took on during the year, and the financial assets it acquired.

The Centre borrowed mainly by selling government securities (bonds and treasury bills) and through small savings schemes such as the Public Provident Fund and post office deposits, whose money is lent to the Centre. It also acquired shares and other equity, which in these accounts covers the capital it puts into enterprises it owns, such as the Railways and public sector companies, not only purchases of listed shares. And it lent to others.

The States borrowed mainly through State Development Loans, their own bonds. Their net loans were negative partly because they repaid the GST back-to-back loans out of the compensation cess (see the GST story).

Two things need a word, because they come from fitting two official sources together:

• The reconciliation residual is the difference between net borrowing as the national accounts measure it and what the financial statistics record for the same government. Both sources are official; they do not quite agree, and this line shows by how much.
• The Reserve Bank's surplus. The map counts as the Centre's income the surplus the Reserve Bank actually paid it in cash during the year. The financial statistics also record what the Reserve Bank owes the Centre: its surplus for 2023-24 was paid only the following year and was larger than the one paid during the year, so the amount owed rose by ₹1.23 lakh crore Derived. With income counted in cash, that rise has no matching income, so the accounts net it against an equal amount inside the Centre's reconciliation residual. The Centre's residual line above shows the two together.

Step 5 of 7Who bought government securities (Centre and States)

Who bought the government securities? The accounts pool the Centre's bonds and the States' bonds in one market, so they show who bought Centre and State securities together, not who bought the Centre's paper alone. Net issuance was ₹18.36 lakh crore Set by balancing.

Banks bought the most, ₹48.6 Estimated of every hundred rupees issued. Insurance companies and provident and pension funds came close behind, with ₹43.3 Estimated. Foreign investors bought ₹6.5 Estimated. Households bought only ₹1.4 Official directly. The Reserve Bank was a net seller over the year, so its line is negative and the buyers' shares add up to more than a hundred.

How much each type of institution bought is estimated from the financial statistics and then adjusted when the accounts were balanced. The households' direct purchases, ₹25,552 crore Official in the table, are a published figure. Each share per hundred rupees carries the label of its own amount; it also depends on total issuance, which was set when the accounts were balanced, as the list of how these figures were made says.

Step 6 of 7Households behind the institutions

Where did the banks and insurers get the money? Largely from households. In 2023-24 households put ₹14.10 lakh crore Official into bank and other deposits, ₹12.60 lakh crore Derived into insurance, provident and pension funds, and ₹4.22 lakh crore Official into small savings schemes.

Read this as pooled, not traced. The accounts route money through markets for each kind of financial instrument, not from one saver to one borrower. They show that households put money into deposits and pension funds in the same year that banks and pension funds bought government bonds. They do not show that a particular family's deposit paid for a particular bond.

Step 7 of 7The cost: interest

Borrowing has a cost. The Centre paid ₹11.02 lakh crore Official total in interest in 2023-24 (3.8% of GDP Official total), up from ₹9.58 lakh crore Official total the year before. The States paid ₹4.95 lakh crore Official total (1.7% of GDP Official total).

These are the interest figures as published in the government accounts. The Centre's series has only two years so far, so it is shown as two values rather than as a trend. The balanced accounts use the national-accounts definition of interest, which differs slightly from the cash figure; the Map's panel for this series explains the difference.

Interest is paid to the same institutions that lend: banks, insurers, pension funds, the Reserve Bank and households holding small savings. On the map it shows as flows from the Centre and the States to banks and financial institutions and to households.