it is said that when the central gov borrows money from RBI, it issues new currency in return. my doubt is why it has to issue new currency, why cant it just lend money from its reserves?

The Reserve Bank of India (RBI) is the central bank of the country and is responsible for the issue and supply of the Indian Rupee. When the government borrows money from the RBI, it is not borrowing from a reserve of pre-existing money. Instead, the RBI creates new money for the purpose of the loan.

Here's a step-by-step explanation:

1. The government needs more money than it has on hand, so it issues a government bond (a promise to pay back a certain amount of money at a certain time in the future).

2. The RBI buys this bond, paying for it by creating new money. This is done by increasing the balance in the government's account at the RBI.

3. The government then spends this money, injecting it into the economy.

4. Over time, the government pays back the bond, effectively removing the money it borrowed from circulation.

The reason the RBI doesn't just lend money from its reserves is because the reserves are not a source of funding. They are a tool used by the RBI to manage the money supply and control inflation. If the RBI were to lend out its reserves, it would lose this control.

In addition, creating new money allows the government to increase spending without immediately raising taxes or cutting other spending. This can be useful for stimulating the economy during a downturn. However, it can also lead to inflation if not managed carefully.