Opinion | Don’t be deterred by the ‘crowding out’ effect of the fisc
Market borrowings of the government do not always squeeze credit for the private sector in India
The so-called “crowding out" effect refers to how increased government spending, for which it must borrow more money, tends to reduce private spending. This happens because when the government takes up the lion’s share of funds available in the banking system, less of it is left for private borrowers. This also impacts interest rates in the economy.