- Economic Survey 2021 recommends India must borrow more to push infrastructure development just as kings used to build palaces in times of downturn or famines
- Government debt is already 68.1 per cent of GDP, private debt is another 54.8 per cent taking total debt as percentage of GDP to 122.9 per cent
- New debt is 20% of all GoI earning in FY20; annual interest payout is 18 per cent of expenditure for the year
- In credit card industry, this is known as debt rollover
- At $558 billion, just external debt caused forex outgo of $18.63 billion (Rs 1.4 lakh crore), more than twice the allocation to ministry of health
- More external debt will be bad optics when Centre is recommending ‘Make in India’
- Centre and states must take cues from corporate India and households. Neither corporate India nor households overspent during the crisis
- Tightening belt can save an incredible Rs 3-4.5 lakh crore for Centre
Right at the core of India’s desperate bid to revive the economy lies the question whether the country can spend substantially more on infrastructure building to generate much higher demand in the economy. Something that can then create a ripple effect in the 100-plus allied and supporting industries to trigger a large scale consumption cycle across the Indian economy.
But at the heart of that question is yet another question: whether India has the financial wherewithal to borrow a lot more than it has already been borrowing to fund substantially higher infrastructure development!
By all accounts, if India needs to give a very substantial push to new infrastructure development, it needs an additional Rs 6-8-10 lakh crore, over and above what the Centre already spends annually, just to trigger a quick virtuous cycle of demand and consumption. That’s 3-5 per cent of India’s GDP and about 20-25 pc of its annual expenditure. Clearly, beyond our means right now!
Economic Survey 2021 recommends India must borrow more to push infrastructure development just as kings used to build palaces in times of downturn or famines. The Survey also suggests that as long as the country’s rate of GDP growth is higher than the rate of interest at which funds are borrowed, the country will be in a position to pay off all debt. That, however, may be a limited way of looking at the nation’s fiscal predicament.
Here are the ground realities:
As of FY21, of all the money that Government of India was collecting/earning in the financial year, debt was projected to be 20 per cent. At the same time, annual interest payout was projected to be 18 per cent of all its expenditure planned for the year.
In the credit card industry, this is better known as the dreaded debt rollover where the borrower keeps adding more debt just to pay off interest while repayment of principal remains beyond his earning capacity.
And this equation will surely skew further when FY21 numbers are announced in Budget 21. In May, 2020, right in the midst of the lockdown and drastic fall in tax…
Go to the news source: Can’t afford to bust Budget ’21 for infra push, trigger consumption! Here’s what…