The Budget set the fiscal deficit at 4.3% of GDP. Someone is on the other side of that loan, and following the money leads back to ordinary savings accounts.
On February 1, the Union Budget set the fiscal deficit for 2026-27 at 4.3% of GDP, down from 4.4% the year before. In rupees, that gap between what the government will spend and what it expects to earn comes to well over ₹15 lakh crore, all of it covered by borrowing. The percentage got debated for a news cycle. The more interesting question barely came up. Borrowed from whom?
The auction you never hear about
Most weeks, the RBI runs an auction on the government’s behalf, selling government securities to the highest bidders. The buyers are almost never individuals. They are banks parking depositors’ money in the safest asset available, insurance companies matching promises that stretch across decades, pension and provident funds doing the same, and mutual funds running debt schemes.
A savings account, an LIC policy and a provident fund are all, indirectly, loans to the government.
That is the quiet punchline of public borrowing: the government borrows mostly from its own citizens, through institutions. A fixed deposit funds a bank’s bond purchase. The provident fund deduction on a salary slip buys government paper almost by mandate. Lending to the state is treated as the safest loan in the country, because a government can tax, and as a last resort print, its way to repayment.
Why the size of the gap reaches you
When the government needs to borrow more, it competes for the same pool of savings as every company and homebuyer. Lenders respond by demanding a higher bond yield, and because government bonds set the floor for other interest rates, costlier government borrowing tends to pull home loan and business loan rates up too. That is one reason this Budget anchored itself to a falling debt-to-GDP ratio, estimated at 55.6% for the coming year, rather than to the deficit alone. A deficit spent on highways and railways, and this Budget set aside ₹12.2 lakh crore for capital spending, can pay for itself in growth. The number is neither villain nor virtue. It is a loan application, filed by the country with itself.
Sources: Union Budget 2026-27; PRS Legislative Research budget analysis.
- The fiscal deficit is the gap between government spending and revenue. For 2026-27 it is set at 4.3% of GDP.
- The government covers it by selling bonds, mostly to banks, insurers and pension funds.
- Those institutions are investing household deposits, premiums and provident fund contributions.
- Heavier borrowing can push bond yields up, which pulls other loan rates up with them.
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