How much do we owe?
Ever thought how much do you owe to your friends/family/Credit Card companies/Banks/Finance institutes and so on?
The money that you owe someone is called debt.
A person with running loans may have a big chunk of debt compared to someone with no running loans. The sum of debt defines how “stable” your life is. Simply put, having huge debt comes with huge pressure, you work harder to repay every single penny, and eventually, no one is interested to give lend you any money until you repay the current debt.
It’s a common saying in economics “Debt brings death”
Ever thought how about how much a country owes?
Well, India’s total debt has become a whopping giant of 101 Lac Crore Rupees. HIGHEST EVER debt in the last 70 years!!!
What does that mean?
It simply means the Govt of India owes 130 Lac Crore Rupees to various entities both internal and external
But who do we owe this amount?
Just like in our cases, a Govt’s debt is divided into 2 categories 1) Internal 2) External.
1) Internal Debt is the capital taken from its a citizen
2) External Debt is the capital taken as a loan from various global entities like IMF, World Bank, NDB, AIIB and etc
Thankfully, India’s major chunk falls in internal debt category. But again that chunk itself is quite huge
How does our Govt take money “internally”?
Whenever a Govt needs capital, they either ask Central Bank (RBI in our case) or via Open Market Operations (OMO), Govt sell bonds or Treasury Bills. These Bonds & Bills are purchased by Banks, Financial institutions, and common people like you and me. And that’s how Govt “takes money from the market”. This is added to the debt to Govt’s account
In the last 10 years, our Debt has been nearly DOUBLED than
Due to the pandemic, Govt has raised a major chunk of capital from the market. This has drastically increased the total debt by over 7% compared to 0.8% debt increased last year in the same quarter
How do we measure if it’s too big or too small?
To measure the debt crisis, a common parameter called “Debt to GDP” ratio is considered. India’s Debt to GDP ratio has been constantly increased for past 6–7. Started with around 67%, we are estimating it to reach over 86%
What will happen if this keeps on going up?
What happens when you have a big sum to repay? Simply, things get messed up. It goes same for the country.
In case it keeps on increasing, it will
- Impact the external investment
- Economy is considered to be weak if Debt to GDP% is high
- A hollow economy is built
- Balance of payment crisis may appear
- Chances of doing default on loan payments
- Inflation keeps on going up
And so on and on.
It is always advisable to keep the D/G ratio below a healthy thershold.
